More people couldn't fully repay CPF after selling property in 2020

More people couldn't fully repay CPF after selling property in 2020

Jan 10, 2022

[SINGAPORE] More people who used their Central Provident Fund (CPF) monies to pay their housing loans were unable to fully refund the amount after selling their properties in 2020, compared with the previous 2 years, data published by the CPF Board showed.

However, not a single person who was unable to do a full refund was required to top up their CPF in cash that year, as the vast majority of these cases sold their property at market value, the CPF Board told The Straits Times.

Home owners who sell their property at market value are not required to top up in cash if their selling price was not enough to fully refund the CPF monies used plus accrued interest.

But this means that this group would have less CPF monies to tap for their next property or for retirement purposes, said the CPF Board.

When home owners sell their property that was paid with CPF savings, they are required to refund the principal amount withdrawn, along with interest calculated at a rate of 2.5 per cent a year.

In 2020, around 4,580 people were unable to fully refund the CPF monies used after selling their properties, compared with around 3,960 people in 2019 and 3,380 in 2018.

The Board did not indicate the shortfall in funds for this group of people, nor gave a breakdown of those who bought Housing Board (HDB) flats and private property.

Data showed that the number of home owners who used their CPF to pay their housing loan instalments decreased from around 817,000 in 2018 to 799,000 in 2020.

When contacted, CPF Board said that the 2021 data would be released around July this year.

Both the private and public housing market started gaining steam in 2020 and ended on a high last year.

In the whole of 2020, private home prices gained 2.2 per cent while HDB resale prices rose 5 per cent.

Flash estimates for last year showed that private home prices climbed at a faster pace of 10.6 per cent while HDB resale prices surged by 12.5 per cent.

To address increasing concerns of home affordability in the buoyant property market, the authorities introduced a round of cooling measures last month.

Since Dec 16 last year, the total debt servicing ratio for borrowers was tightened while the loan-to-value (LTV) limit for HDB housing loans was reduced to cool the property market and encourage greater financial prudence among buyers.

The additional buyer's stamp duty rates were also raised, although levies for Singaporeans buying their first residential property remained at zero.

Professor Sing Tien Foo, director of the Institute of Real Estate and Urban Studies at the National University of Singapore, said the price appreciation of some properties may not be large enough to cover the transaction costs incurred, which could include legal charges, stamp duties, brokerage fees or agents' commission fees.

"Some people who sold their properties in 2020 may have realised some 'paper gains' in value, but these gains may not be large enough to offset their transaction and financing costs," said Prof Sing.

The higher transaction volume of properties that year may also have contributed to the increase in the proportion of people who sell their property at or below market value, said Prof Sing.

In 2020, more than 24,700 HDB resale flats changed hands, compared with around 23,700 units in 2019 and 23,000 units in 2018.

Prof Sing said that while not having to top up the shortfall in cash may have short-term benefits, some older people may struggle with less CPF for future property purchases and loan payments.

"As mortgage loan terms usually shorten with the age of buyers, it will be more difficult for senior households to use CPF to help partially finance their home purchases, as they would need to use more cash for mortgage loans. They may need to pay higher monthly debt services if their loan terms are shorter," he said.

ERA Realty head of research and consultancy Nicholas Mak said some buyers simply may not be aware of how quickly the accrued interest on CPF monies, and other loans, can accumulate.

"At 2.5 per cent per annum, the accrued interest can be substantial if the mortgage sum is large and over a long period of time of more than 10 years," he said.

In addition, those who chose to take up a HDB housing loan also have to pay an interest of 2.6 per cent per annum, said Mak.

"But people may still prefer HDB loans because the max LTV for HDB loans is 85 per cent, after the new cooling measures, while the max LTV for private bank loans for HDB flats is 75 per cent," he said.