Retirement and housing: balanced approach needed

THIS WEEK'S TOPIC: To what extent should CPF savings be allowed for the purchase of shorter-lease property (both public and private)? How might the trade-off between protecting the value of older leasehold property and safeguarding Singaporeans' retirement adequacy be managed?

Mon, Aug 27, 2018

Tony Lombardo
CEO Asia

PRIME Minister Lee Hsien Loong's National Day Rally announcements have helped to alleviate concerns and uncertainty with regards to expiring leases of older HDB flats. It is timely to review the CPF limit for these flats, a move that will provide Singaporeans added flexibility in the use of their CPF savings.

A balanced approach is important for CPF savings to remain as a means to safeguard retirement adequacy and maintain flexibility for Singaporeans who require the use of their CPF savings for housing needs or the need to right-size.

Vipin Kalra
Chief Executive Officer
BankBazaar International

MEASURES such as allowing use of CPF for purchase of shorter-lease property sound great as they will increase the liveability and resale value of older property.

However, I would advocate for reasonable limits to be set on the extent to which CPF can be used. Ultimately, CPF is meant to serve as a buffer for retirement and utilising the funds to purchase short-lease assets may jeopardise that. Also, opening up the market for older flats without setting any limits may make the property market more volatile, leading to the need for further intervention by the government. This will not be a favourable situation for buyers or sellers.

Sheena Chin
Country Director
Veritas Storage (Singapore)

THERE should be a good balance between using CPF savings for the purchase of shorter-lease property and safeguarding Singaporeans' retirement adequacy. Over time, the supply of older leasehold property will tend to outgrow the demand, as new developments are being built. While homebuyers will like to buy with asset appreciation in mind, it pays to recognise the possibility that the value of their properties might depreciate due to simple economic realities.

As the latest policies seek to address the issue of declining value of older properties, it is important to keep in mind that prices should keep pace with the income levels of the average Singaporean. Fulfilling housing and retirement needs (in addition to healthcare) are key tenets of the CPF scheme that we should preserve, amid changing market dynamics and rising cost of living.

Lim Soon Hock
Managing Director

ANY policy, including that related to the use of CPF for the purchase of properties, must be periodically reviewed - and done so holistically - to stay relevant with the changing times.

With a fast ageing population, higher expectations and new lifestyles, retirees must be given more flexibility to monetise and/or own homes. The government therefore should create scope to offer more flexibility for buyers to purchase shorter-lease HDB flats, using CPF.

Current and newly announced healthcare schemes will provide improved retirement adequacy for retirees. The long-term plans announced to upgrade HDB flats to enhance their value and livability is yet another move to safeguard retirement adequacy.

Dileep Nair
Independent Director
Thakral Corporation Limited

CPF savings currently cannot be used to buy properties on leases with less than 30 years remaining. Even for properties with less than 60 years remaining, the buyer's age plus the remaining lease must exceed 80 years. These rules seem overly restrictive considering that CPF monies have to be put aside in the Retirement Account to go beyond the valuation of the property.

What's more, the Prime Minister has just announced a second upgrading of HDB flats when they reach 60-70 years. With the availability of such older flats in good condition, it would be a waste of resources to artificially keep them off the market. The government must acknowledge that the Singaporean milieu has matured and people want more control of how to use their CPF savings. It's high time to shake off our nanny-state image.

Henry Tan
Managing Director
Nexia TS Group

HOUSING is a very good preservation of wealth against inflation and erosion of value of money. Whilst short-lease properties may have value running out, the public should be educated that a 39-year-old property may not be too short.

However the government needs to put in place a process to top up leases as well as renewal of the lease term. Once it is seen as conducive to get a new lease period of another 30 years, it would become an acceptable industry practice for housing to be much more scalable.

Maren Schweizer
Schweizer World Pte Ltd

ASSET rich and cash poor! Although most households will have a fully-paid home at retirement, they may have insufficient cash flows for daily living. The decline in retirement adequacy has somewhat been mitigated by the appreciation of home values over the last decades.

The high cost of housing and the long duration of mortgage servicing mean that Singaporeans are diverting the bulk of their lifetime incomes to home ownership instead of preparing for retirement. This has resulted in a lack of liquidity during old age, and it suggests an urgent need to introduce mechanisms for households to unlock home equity to generate cash flow for retirement. For example by:

Reverse mortgage
Subletting to earn rental income
Further improve Lease and Buyback. The existing scheme is calling for a solution in case the owner outlives the 30-year lease period.
Limiting withdrawal of CPF for housing for future generations would require careful execution as it can affect the real estate market and limit possibilities to generate cash.

Dora Hoan
Group CEO
Best World International Ltd

CURRENTLY there are constraints on the use of CPF funds for the purchase of HDB flats (as well as private property) with leases of less than 60 years. These constraints stop people who have less cash from buying property that is more than 39 years old. To improve the liquidity of the resale market for older flats, we suggest government reduce the 60 years threshold to 50 years. This will create more demand and therefore protect the value of leasehold property.

On the other hand, to safeguard Singaporeans' retirement adequacy, the total amount of CPF funds that people can use to pay off their property depends on two limits: the Valuation Limit (VL) and the Withdrawal Limit (WL). These limits should apply to all types of loans, whether from HDB or commercial bank. This will help ensure Singaporeans have enough funds and can enjoy their retirement life.

David Leong
Managing Director
PeopleWorldwide Consulting Pte Ltd

CPF is a set-aside saving account specifically designed for its members' retirement adequacy.

If CPF is allowed to be used to purchase short-lease property with less than 60 years, then the short-term property will not be a good hedge since the asset may lose value over time. As the lease gets shorter, the value drops. This will impact retirement adequacy as the CPF may not give sufficient funds to be returned to the account when the short tenure property nears its end-of- lease.

One possible option is for the government to sell short leases ranging from 3, 6 or 9 years to affected residents who outlive the end-of lease of the property. This short lease can be paid out of the CPF ordinary account or if need be, the special account so long as no money is needed for this extension of lease. This way, the residents can stay on in the property without any worry of losing the roof over their head.

Helen Ng
Chief Executive Officer
General Storage Company Pte Ltd

THE announcement on Vers (Voluntary Early Redevelopment Scheme) is timely and addresses an issue that has been simmering since the Minister for National Development announced that not all old HDB flats will be selected for Sers.

The government should continue to adopt a conservative approach when allowing the use of CPF savings for the purchase of shorter-lease HDB flats to ensure that citizens have adequate funds for their old age. The current equations should remain in place but calibrated to allow citizens to use their full CPF savings to purchase flats with remaining leases of 50 years or more instead of the current 60 years.

Annie Yap
AYP HR Group

CPF withdrawal for short-term properties (STP) should be allowed only for the purchase of a second property, for people who already own a long-term property (LTP) and has satisfied the basic retirement sum (BRS).

Currently, individuals are only allowed to use their CPF to buy a second LTP after satisfying the BRS. This courtesy should be extended to STPs. To encourage prospective buyers to buy STPs instead of LTPs, the government could incentivise these buyers. These incentives would increase buyer confidence and create a new market for such properties. Sellers benefit through having extra cash for a new home and for retirement.

Hari V Krishnan
PropertyGuru Group

AT PropertyGuru, we understand that the issue of shorter-term, expiring leases is of significant concern to Singaporeans, with 36 per cent of them concerned about depreciating values of older flats, and 35 per cent worried about being able to pay for adequate housing in old age, according to our most recent Consumer Sentiment Survey. The current constraints on the use of CPF funds to buy older public housing are to mitigate the risks from lower resale returns for older homes, which might make it difficult to pay back the necessary sums to one's CPF account.

While funds for an adequate retirement should be prioritised, especially as Singaporeans age, the government could introduce a degree of flexibility. One option could be to take into account other sources of retirement income, such as insurance plans and income from renting out spare bedrooms. This would help ensure that adequate funds are committed towards retirement, while unlocking more money in one's CPF account to pay for housing in the present.