So, in my previous article about the cooling measures directed at public housing, I promised to talk more about Annex IV (due for release 1 July 2013), which deals specifically with purchase of HDB flats with less than 60 years of lease remaining. Well, here it is!

After analysing Annex IV in greater detail, we realised that it isn’t presented in a very intuitive manner. So we set about trying to break it down and restructuring it into a more understandable format. We ended up with two tables, roughly corresponding to the two parts of Annex IV. One section deals with usage of CPF when buying flats with less than 60 years lease remaining, outlining eligibility as well as the limit on total CPF amount that can be used to make the purchase.

The other section deals with HDB loans for said purchase. It describes the eligibility conditions for taking a housing loan from HDB, as well as the maximum tenure of such a loan.

The tables we created explicitly state the CPF usage limit, or maximum HDB loan tenure, based on the property’s lease remaining, as well as the age of the buyer(s).

In order to use the tables, first look up the remaining lease of the property in question along the top row. Then, look down the table to cross-reference with an individual buyer’s age (for CPF usage eligibility, and total contribution limit based on youngest contributor) or average buyers’ age (for maximum HDB loan tenure).

The number at the intersection of a specific lease and age is the total CPF usage limit expressed as a percentage of Valuation Limit, or maximum HDB loan tenure in years, respectively. If the space is a light grey blank, it means that particular combination of lease and age is not eligible for CPF usage or HDB loan.


Eligibility and Corresponding Limit for CPF Usage

(Click to Zoom)

> Usage of CPF eligibility for multiple contributors is determined individually at point of purchase. A difference in ages of buyers may preclude one buyer from using CPF despite another being eligible.
> The percentages (rounded down) indicate the total CPF usage limit expressed as a percentage of Valuation Limit (VL). VL is the lower of its valuation or its purchase price.
> Total CPF usage limit is based on age of youngest contributor, but limits the total usage amount of ALL contributors to that HDB unit.
>All ages and remaining lease figures are taken at point of purchase.


Eligibility and Corresponding Maximum Tenure for Securing Loan from HDB

(Click to Zoom)

> Average buyers’ age refers to average age of all buyers of that HDB unit, at point of purchase.
> The numbers in the table indicate the maximum loan tenure, in years, that can be obtained from HDB, for a particular average age of buyer(s) and particular lease remaining, at point of purchase.
> The section in blue denotes the point at which the remaining lease starts to limit the maximum HDB loan tenure. Prior to that (to the left of the blue section) the tenure is limited by the average age of buyers for that HDB unit, or the hard limit of 30 years.


We hope our tables help readers figure out how these measures will affect purchase of HDB apartments with less than 60 years left on their lease. While it may seem like this section of the property market hardly needs cooling, we believe that Annex IV is necessary.

Firstly, it shows that the goverment is considering solutions that are holistic and cover the full spectrum of property. No part of the market truly stands alone, and the low-end market can have an effect on the high-end market, and vice versa. By addressing the short-lease HDB market, these measures show a determination to fully tackle the issue.

That being said, we also believe that the short-lease HDB market is suffering from over-valuation and runaway prices. It may not be obvious, because the absolute quantums are low, but when compared to newer HDB units, the relative prices are dire indeed. The value of a HDB with less than 60 years left on its lease simply cannot justify its price tag, despite it being lower than a new HDB unit.

Lastly, we think that raising awareness about the problems of short-lease HDB units is the responsible thing to do, as not all buyers are aware of the pitfalls. With more and more HDB units falling under this category, we think this measure is timely.

Did you find this explanation and discussion of Annex IV useful? Let us know what you think, and share with us by commenting below or in our social media channels, Facebook, Twitter, and Google+.



  One Response to “How Recent Cooling Measures Affect HDB Loans – Annex IV”


    Aiyoh. Why so complicated. That is how the American tax law grew to thousand of pages and no one understand it as a whole anymore. Why not target the basic drive behind it, GREED. Slam a progressive, time based capital gain tax permanently and put the genie back into the bottle. Oh, while doing that, add a clause to triple the impact on PR and non-citizen.

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