Monday, March 26, 2018

CPF is our hard earned money

Dear Mr Tan

1) You probably will agree that many Singaporeans are asset rich and cash poor. I believe many of them are trapped in a situation when buy a resale flat or their BTO are ready but they do not have the cash available for renovation. Do you agree that the government should allow Singaporeans to use their CPF for house renovation? Afterall, renovation is considered a capital expenditure as opposed to an expense in accounting terms and will add value to the house.

Interestingly, the Optional Component Scheme (OCS) under BTO allows a home buyer to add such renovation cost of the optional components to the selling price of the flat. But the scope and options available under OCS is very limited and many home buyers ended up having to engage private contractors to renovate their house. I feel that since the government recognizes the importance of including renovation as part of the house price, then shouldn't the government also allow Singaporeans to tap into their hard earned CPF for their house renovation?

2) The other issue I would like to address is regarding refinancing of HDB flats. Suppose you buy a private property at 1 million and took a 800k loan (80% LTV). When your property value doubled its value over the years and you refinance your loan at 80% The new loan of 1.6 million will be used to settle the previous 800k loan and the remaining 800k will be released to you as your "capital gain proceeds".

However if you buy a HDB flat instead and your house value has doubled and you refinance your HDB flat, a different rule applies. Instead of cashing out your "capital gain proceeds", the proceeds are locked in the property and can never be cash out. In this case, many retirees are unable to unlock the capital gains in their HDB flats and use it for their retirement. Instead, they are either forced to sell their flat or sell part of the lease back to HDB under the Lease Buyback Scheme just to unlock some CPF when in actual fact they shouldn't have to.

Based on the above two issues, it appears that Singaporeans has been working hard and keep part of their retirement nestegg in their CPF but the government seems to have biased regulations that deter Singaporeans access to their own CPF for their proper use. Is this not improper hoarding of our CPF by the government?

With your vast financial knowledge background, I would like to hear your personal views on these issues.

Dear X
Let me think about how to answer your question.
The correct person to answer is the minister for national development, lawrence wong.
He earns a million dollar salary.
Still I will try to answer it without getting any salary.

ONE HOUR LATER:
Dear X
I am now able to give my reply to your two questions:
1) I agree that the the CPF member should be allowed to take out some of the CPF savings for renovation. Perhaps it should be 10% of the purchase price.
Why?
The property could have been "renovated" by the developer and the cost would have been included in the sale price. If the developer sell a partly "renovated" property, the buyer should be allowed to get financing for the renovation.
2) I do not like the concept of "refinancing a loan" based on the appreciated value of the property. My objection applies both to the private property and to HDB. The refinancing locks in the appreciation, but that appreciation could be temporary or not sustainable. I like to see government regulation to stop this kind of refinancing of all property.

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