Today Online published an article recently, titled “Private community homes for seniors needed for Singapore, property firm says” <Link to Article>. This article talks about the need to prepare Singapore to meet the needs of its ageing population. It was quoted that one in four Singaporeans will become senior citizens by 2030, compared to one in eight who were seniors in 2015.
There is one sentence in the article that is particularly important to takeaway – “they (senior citizens) would face fewer options to monetise their property, being “asset rich (but) cash poor”.
Majority of Singaporeans’ wealth is tied to the property that they live in. Having spent their working life striving hard to pay off their mortgages, it will be very unfortunate if a person retires and end up holding a property that offers limited options to monetise at the end of the day.
How real is this situation of being asset rich but cash poor? Why can’t I sell my asset during my retirement? Well, the answer would probably lie in the CPF withdrawal limitations for properties with less than 60 years lease left.
What are these limitations?
Most Singaporeans rely heavily on their CPF savings to pay for their property purchases, which means that they are subject to the above limitations. You might be wondering why is it that the old HDBs in mature estates are still fetching record high prices despite the limitations. Well, the reason could be that we have not seen the full impact from this drawdown limitation at this point in time.
Let’s use a 52-year old HDB unit (built in 1965) as an example. According to the withdrawal limitations, a buyer can still use his CPF to pay for this old property today, as long as his age is at least 28 years old and above. This age group is considered a ‘sweet spot’ for a new family formation and a person in this age category would also be moving towards the prime of his career with rising income. Hence, for various reasons such as lifestyle, proximity to parents, schools etc, a person in the eligible age category may still choose an old HDB without being subject to the limitations of CPF drawdown at this stage.
Let’s take a look at the statistics. The table above contains the building statistics obtained from HDB, showing the number of dwelling units built since 1960. To date, HDB has built 1.13 million dwelling units for Singaporeans. For the purpose of this study and illustration, let’s simplistically assume that this is the total amount of dwelling units in the market today, even though some units might have already been taken back by HDB via SERS programme.
On this basis, there are currently 76,000 units or 20% of total HDB units that have remaining leasehold of 57 years and below, and these units are subject to the CPF Housing Scheme withdrawal limitations. But nonetheless, as long as the buyer’s age is above 23 years old, he is still allowed to withdraw his CPF savings to buy a property has a remaining leasehold hold 57 years old. The potential pool of buyers for the old properties is still pretty big at this moment.
But what happens 13 years down the road, in year 2030? Things would become significantly different from now. Looking at the table above that simulates the remaining tenure of existing pool of HDB units in year 2030, there will be 668,000 units or 59% of total HDB units that have remaining leasehold of 59 years and below! A whopping three times increase within a span of 13 years! While majority of these units can still be purchased using CPF savings (as most of them still have leasehold of more than 30 years left), but on the demand side, the potential pool of buyers would have shrunk. For a typical new family formed at age group of 25 to 35 years old, they will not be able to drawdown their CPF to buy the older units built between 1960 and 1975 (as age + remaining leasehold is less than 80 years). Hence, it would be much harder for a retiree to monetise his old HDB in 2030.
This looks like a potential social issue in the making. But nonetheless, there is still time for government to react before the situation gets worse. In SPK’s opinion, government still have the flexibility to use various policy measures to prevent a worst case scenario from happening. For example, the CPF Housing Scheme withdrawal limitations could be relaxed, by lowering the 60 years threshold to 40 or 50 years, or starting to offer cheaper units with shorter leasehold of 60 years or less and change public perception of short leasehold tenure properties. This was previously done when government experimented and sold a 60-year leasehold site at Jalan Jurong Kechil. Maybe this might be the norm in future?
It is anyone’s guess at this point in time.
Keep Calm and Carry On!
The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.