Debated in Parliament on 3 Nov 2014.
Dr Intan Azura Mokhtar asked the Minister for Manpower what is the rationale for allowing only up to 100% of the valuation limit of a property to be paid from one's CPF Ordinary Account where this amount does not include the total interest payable.
CPF members are allowed to use their CPF savings to buy a property, which serves not just to meet housing needs but also as a form of investment. If the member subsequently sells the property, the amount of CPF savings withdrawn plus interest that would have been earned had the savings remained in the CPF account, would have to be refunded to the member's CPF account from the sale proceeds. Therefore, capping the CPF usage at the Valuation Limit (VL), which is set at the lower of the purchase price or property value at the time of purchase, minimises the risk of CPF members not being able to recover the full amount of CPF used for his property.
The VL policy also serves to encourage CPF members to make prudent property purchases and take up housing loans within their financial means. It helps to preserve some level of cash savings in members' CPF accounts for their retirement. As new flats purchased directly from the HDB are subsidised, the VL does not apply if they are financed with a HDB loan. This means that about four in 10 of property purchases financed using CPF monies are not affected by the VL policy.
CPF members can use CPF savings beyond the VL to pay for the property if they have set aside half of the Minimum Sum in their CPF accounts. Most CPF members have been prudent and have taken the CPF usage limits for housing into account in deciding which property to purchase. The number of CPF members who have reached their VL and are unable to set aside half the Minimum Sum is small – at less than half a percent of those who are using CPF savings to service their housing loans. For affected CPF members who find it difficult to service their housing loans in cash after they reach the VL, flexibility can be
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provided upon appeal. But the general principle remains that members should be prudent in their housing purchase decisions.
PAPERCUTS