How to Fully Utilize CPF to Finance Your Housing

Most Singaporeans will know that we can purchase a property in Singapore with the savings we have accumulated in our Central Provident Fund (CPF) Ordinary Account (OA). 

Buying a property is a big ticket purchase – thus many of us have had to rely on our CPF funds to supplement cash for our purchases, on top of taking a mortgage. But do you know exactly how much CPF can we and should we use for a property purchase?

What can CPF be used for?‍

First and foremost before we find out how much CPF can be used for a property purchase, we ought to know what are some essentials that CPF can and cannot be used for. 

Can I use all of my CPF for property purchase? Are there any restrictions?

Having now known what we can use our CPF-OA funds for, there are however certain circumstances that will impose a restriction on how much CPF can be used for.

Restriction 1: Remaining Lease of purchase property

Firstly, CPF cannot be used if the intended purchase property has a remaining lease of 20 years or less. 

Secondly, the age of the youngest buyer (owner-to-be) plus the remaining lease of the property must add up to 95 years or more for full utilisation of CPF. If the sum is less than 95 years, then the amount of CPF which can be used will be pro-rated. The pro-ration is calculated using this formula:

(A) Lease when youngest owner turns 55 

(B) Remaining lease at time of purchase x Valuation limit

So for example, if you are buying a property with 50 years of remaining lease at the time or purchase when the youngest buyer is 40 years old,

(A) = 35 years (as youngest buyer will turn 55 in 15 years time, and lease remaining would be 15 years less from 50 years)

(B) = 50 years

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By plugging (A) & (B) respectively into the formula above, the maximum amount CPF you can utilised would be 35/50 x valuation, which would translate to be 70% of the valuation.

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Restriction 2: Valuation limit & Withdrawal limit

These are imposed to limit how much CPF OA funds can be used to pay for your mortgage loan. How these limits apply depends on 

1. Where you take the loan from,
2. Type of property that you are purchasing

(A) For new flat purchase using HDB loan: you can fully utilise your Ordinary Account.

(B) For resale flat purchase using HDB loan: Subject to valuation limit. You can use all owners’ Ordinary Account savings up to the lower of purchase price or valuation. Thereafter if loan is still outstanding, you can continue to use Ordinary Account savings to pay off the loan provided you have set aside the CPF Basic Retirement Sum amount.

(C) For any purchase using Bank loan: Subject to valuation limit similarly to (B) except that thereafter if loan is still outstanding, you can continue to use only another 20% of the lower of valuation or property price from your Ordinary Account savings to pay off the loan provided you have set aside the CPF Basic Retirement Sum amount (BRS).

However for purchase using bank loan there is another mother restriction, the withdrawal limit states that maximum Ordinary Account savings utilised all in all cannot exceed 120% of the valuation limit.

Restriction 3: CPF usage for multiple property purchases

There are additional restrictions if you are already using or have used your CPF for a prior property purchase, and are applying to use your CPF savings for an additional property.

For multiple properties bought from 10 May 2019, you are required to set aside the applicable Basic Retirement Sum amount (BRS) before you can use any excess OA savings if any of the property can cover you till age 95. Otherwise, Full Retirement Sum (FRS) has to be set aside. FRS has to be set aside also if you choose to later on sell off the property that covers you till age 95.

If you intend to sell your existing property (such that your new property will be the only one using CPF), you will be given a 6 months grace period to do so. The 6 months will commence from date of Temporary Occupation Permit issued for properties under construction; or date of completion of purchase for completed properties.

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It is important to be aware of how much CPF savings you have used for your property in relation to how much you can use – as you don’t want to find yourself in a situation where you cannot use your CPF anymore and you do not have enough cash to service your mortgage loan.

CPF has devised a Housing Limits calculator that takes in consideration all such restrictions, which you can find here for easy computation.

How much CPF should I be using?

The CPF is created by the government to help facilitate Singapore citizens and residents in building up adequate retirement finances. Although certain allowances have been made to allow using CPF to be used for selected functions (property purchase, education fees etc), we should always keep in mind the ultimate objective to ensure that we have an adequate financial reserve to support our retirement lifestyle.

Maximising CPF usage without proper planning and knowing what repercussions incorrect usage can bring is a risk that will only manifest itself at a time when it is too late. 

As we all know, an interest rate is given on our CPF savings to grow over time – and by taking out the funds from CPF for property usage, we are basically forsaking the compounding of such interest. This however can be compensated if we are able to invest the funds into good properties whose value will grow and if not, be retained.

On the other extreme, these interests and then some more of our CPF retirement funds can be lost if the properties we own end up in a negative sale – where the sale proceeds are not even sufficient to refund the amount of CPF that has been taken out from our accounts for use. Usually by then, we will be of the age where we will not have sufficient time horizon to recuperate that which we have lost.

It is therefore paramount to understand the possible risks and pitfalls in every facet of our property purchase, in order to best safeguard our interests and also to achieve our intended objectives.

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FAQ

Q: Can I use CPF to pay for private property?

A: You can use your CPF Ordinary Account funds to pay for your condo downpayment, which is approximately 20% of the purchase price.

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Q: Can I use CPF to pay for property after 55 years old?

A: You can continue to use your Ordinary Account savings to pay your housing loan if you have applied to reserve the amount in your Ordinary Account before you turn 55 years old. You can also use your new CPF contributions to your Ordinary Account if you are still working after 55 years old.

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Q: What happens to my CPF saving when I sell my property?

A: You will need to refund the principal amount + accrued interest back into your CPF accounts. Any option monies (e.g. option fee and option exercise fee) received from your buyer in cash are considered part of the selling price and need to be refunded to your CPF accounts.

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Q: Can I use my CPF Special Account or Retirement Account to pay for my property?

A: You cannot use your CPF Special Account or Retirement Account to finance your property as they aremeant for your retirement.

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Q: Can I purchase a studio apartment with my CPF?

A: You need to ensure that you have set aside your Basic Retirement Sum before you can purchase a studio apartment with the excess in your Ordinary Account.