Last year, Mr Salty reached an important milestone as a Singaporean: I turned 35. Prior to my birthday, I pondered deep and hard on whether I should buy a HDB flat.
All Singaporeans who are single (unmarried) by the time they turn 35 are eligible to buy flats from HDB. The flats could be new (3-room flats) or resale (4-room and above). The crucial decision I had to make was: Should I even buy a flat from HDB?
What Else Can We Use the CPF For?
The lovely CPF – Singaporeans have a love-hate relationship with it. We can retire with it, but we won’t effectively “touch” all of it even till the day we die. It is our money, and yet not our money. We can only start “using” it after we retire, and yet we can start “using” it before we retire.
Can Singaporeans be blamed for behaving like we have split personalities?
Anyways, there are multiple ways we can use our CPF savings before we retire, either to grow the savings or to develop ourselves or our children.
For example, we can use whatever savings we have in CPF Ordinary Account (OA) for stock investment, provided we have $20,000 left in the OA after that. However, considering that anything beyond the $20,000 amount in CPF OA earns 2.5% interest a year currently, the pressure of using CPF for stock investment becomes whether we can increase the value used for stock investment by 2.5%. And there’s the inflation we have to beat too.
We can also use CPF for paying for education (ours, or our children’s), pay for medical bills and buy houses (a typical Singaporean most likely can only buy 1 house with their CPF savings).
Since I already have a degree, don’t intend to get married (and have children) and am still in good health, the next obvious choice is to use my CPF savings for buying a house. If not, the extra CPF savings would just be sitting there just earning enough interests to beat the inflation rate.
Also, I have written a post about why we should not wipe out our CPF when paying for our HDB flats / houses, and how we can fully utilise that CPF rule to safeguard our house. You can read that in the post “You Don’t Have to Use Up Your CPF to Buy Your HDB Flat!”.
N.B: There are a lot of caveats for CPF monies earning preferential interest rates. For example, the first $60,000 of combined CPF savings earns an extra 1%, but capped to first $20,000 for OA for 3.5% and the rest of the CPF accounts earn 5%. This does not include the Retirement Account. To find out how each CPF account earns interest rates, visit the link below:
https://www.cpf.gov.sg/Members/AboutUs/about-us-info/cpf-interest-rates
Buying for Future
While it’s easy to determine whether the CPF used for stock investment is “worth it”, the same cannot be said for buying a house. In Singapore, almost all properties are 99-year leasehold, which means there is a limit to how much a house can appreciate in value.
Singapore New Property Prices Is Only Going to Go Up
In fact, due to the various restrictions placed by HDB, it is hard to make “good money” from buying a HDB flat. After all, the government’s intention is for Singaporeans to buy flats for their own residence, so I wouldn’t be able to rent out my flat in the first 5 years of owning the flat.
On the other hand, private properties are so expensive that, for a typical Singaporean like me, I could only afford the low end condo, which would land me in a debt trap. Unless I have parents willing to take me in, it’s very difficult for me to monetise the condo by renting it out.
The most direct “benefit” of buying a house with my CPF savings is that the cost of new properties in Singapore is most likely to rise than fall in the long term. Job security is no longer a certainty, so it’s better to buy a house now while it’s still cheap (relative to the future) and I still am eligible to buy it (while holding on to a job).
I’ll elaborate in a future post about how to cushion our purchase with CPF savings for the event that we might be unemployed, so that we need not resort to selling our flats.
Flexibility to Monetise
Additionally, since I’ll be buying a 4-room flat and above, I have the capacity to rent out at least one room when the need arises. This means that in the event that I become unemployed, I can still monetise my flat to generate some income for survival. If my savings are locked up in CPF, I would not be able to do this.
Talk about not being able to use our CPF savings for emergency cash!
Recoup Taxes from Government Grants
Another main consideration I had for buying a HDB flat was that I could get government grants (officially known as HDB Grants, but unofficially as CPF Grants, since the money was disbursed into our CPF). The grants, however, were not available for purchase of condos.
The total amount of grant I got was $35,000 ($25,000 from CPF Housing Grant and $10,000 from Proximity Housing Grant). On average, I paid $3,000 in taxes a year. Therefore, in the 10 years that I worked full time, I would have paid about $30,000 before I turned 35 years old.
The hard fact for unmarried Singaporeans is that we barely benefited from social benefits doled out by the Government, it meant that for the past 10 years, most of the taxes I paid were distributed to other Singaporeans in cash, rebates or benefits. Buying a HDB flat and getting the grant was my way of recouping the taxes I paid for the past 10 years.
There was a catch though. If I didn’t choose to stay near my parents, I would not get the Proximity Housing Grant of $10,000, which meant that I would receive less than the taxes I paid. This condition actually restricted the area that I could choose to buy my flat. Additionally, though I recouped the taxes paid for the past 10 years, I would not have “recouped” the taxes I would be paying for the rest of my working life.
However, that was still better than nothing!
N.B: My flat was purchased before the rules changed in Sep 2019. For example, people like me would have gotten $40,000 when they buy a HDB flat after Sep 2019. Today has a report that summarises and presents the information simply with an inforgrapic:
Conclusion
Being the pragmatic Singaporean (no thanks to the education system), I, Mr Salty, decided to buy a HDB resale flat when I turned 35. For unlocking my CPF for use other than sitting in a savings account, for safeguarding my future, and for recouping the taxes I paid so far.
As for singles who have already turned 35 or going to, there is really no reason to resist, especially considering this is one of the few “carrots” that the Singapore government throws in our way!
For those who are still far from 35, but already know you are going to remain unmarried, plan your financials beforehand! You can only maximise the benefits only if you purchase a 4-room flat and above!
If you enjoyed this post, remember to Like and Share it on your Facebook or Twitter! For the 35 year old singles, you can also read my other post on how I managed to get my HDB resale flat in 14 weeks! Or for those who have already bought your resale HDB flat, check out my post on my experience using IKEA Kitchen Planner, or my experience installing Yale digital lock!
Remember, salty is life!