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As of 2019, around 140,000 HDB flats have less than 60 years of lease remaining. This represents 15% of the public housing supply. The issue of depleting lease has become more prevalent in recent years as a growing proportion of HDB lease start crossing the 30-year mark.
To manage the issue of depleting lease, new rules have been introduced by the Ministry of National Development and Ministry of Manpower for CPF usage and HDB loan. Here’s what you need to know and how you will be affected by the change.
Since the aim of the HDB is to ensure that Singaporeans have a roof over our head in our lifetime, HDB used a simple criterion to determine that. Under the old rule, if your property has less than 60 years of lease left, you will face some limitations in your CPF usage.
|Criterion||HDB Loan||CPF Usage|
|Remaining lease >= 60 years||Loan amount up to 90% of Loan-To-Value (LTV)||CPF usage up to Valuation Limit (VL)|
|Remaining lease < 60 years||Loan amount up to 90% Loan-To-Value (LTV) if:
1. Lease covers youngest owner till age 802. Remaining lease >= 20 years
|Pro-rated Valuation Limit (VL) if:
1. Lease covers youngest owner till age 802. Remaining lease >= 30 yearsNote: Pro-rate calculation = Remaining lease / 60 * VL
The reasoning is simple. It is because the new property will likely not be able to last you till you are age 95. There could be a chance that you will be left homeless at a late stage in your life and that’s something that the government wants to avoid.
According to the HDB, majority of Singaporean homeowners are living in an HDB flat that can provide shelter for them till age 95. However, with the oldest HDB flats crossing 53 years of lease this year, the old rule of using remaining lease as the only criterion will not make sense anymore. Thus, it will be replaced with a new rule, i.e. if the property can cover the youngest owner till age 95, there will not be a cap on the CPF usage and HDB loan.
|Criterion||HDB Loan||CPF Usage|
|Covers the youngest owner till age 95||Loan amount up to 90% of Loan-To-Value (LTV)||CPF usage up to Valuation Limit (VL)|
|Does Not Cover the youngest owner till age 95||Pro-rated loan amount from the 90% of Loan-To-Value (LTV)||CPF usage up to a pro-rated Valuation Limit (VL)|
|Note: While the pro-rate formula is not disclosed, you can gauge the pro-rated amount using CPF’s housing usage calculator.|
For Singaporeans/PRs who are looking to purchase a BTO flat, there won’t be any change to status quo. However, there could be more competition from home buyers who are priced out of resale flats under the new rule change. This could make the BTO process even more competitive than it currently is as more buyers apply for a BTO flat.
The group that is expected to be hit the hardest are the millennials who are in your late 20s and early 30s. Since the property needs to cover the youngest owner till age 95, millennials who are looking at resale flats might have to fork out additional cash to cover the lower HDB loan amount. You will also have to make more monthly contributions in cash for the monthly loan repayment.
Another concern for millennial home buyers is whether you can still afford a home near your parents. If your parents are living in mature estates, the resale flats are expected to be decades into their lease. With the new rules, you will need to reconsider the affordability of a resale flat under the new rule. After all, it is unlikely that you can find new BTO projects in mature estates like Bishan.
But millennial home buyers don’t have to despair. There are still workarounds to living near your parents. For example, you can target newer flats in the estate that are still within 4km of your parents’ flat to tap onto the Proximity Housing Grant. Additionally, if your parents’ flat is on the edge of two estates, you could consider a flat in an adjacent estate that is still within 4km of your parents’ flat.
For home buyers who are above age 35, the new rule represents one thing: More financial flexibility to buy older flats. If you are part of this group of home buyers, you no longer have to worry about buying older HDB flats. This could benefit current home owners who are looking to upgrade to a bigger flat or those who are planning to move to a more central location.
Previously, there was a dip in demand for older HDB flats that were closing in on the 60 year lease mark. This is because home buyers will be restricted by the HDB loan and CPF usage rules under the old rule. As such, old HDB flats that were closing in on the 30-year lease mark will not fetch a good valuation.
With the new rule, there could be a resurgent in demand for older HDB flats. Interested buyers who were unable to tap onto the full usage of their CPF under the old rule can now tap onto their CPF. This could attract older Singaporeans/PRs who are looking to downgrade to relook these older HDB flats and allow home sellers to unlock value in their HDB flat.