Most Singaporeans can't imagine owning an HDB flat without using their CPF money to pay for it. While some complain about how their CPF money is “locked” up, the compulsory savings scheme is no doubt a major factor that has helped Singaporeans achieve such a high homeownership rate. On top of using CPF money, the CPF Housing Grant, or HDB Grant, is another important policy that is helping Singaporeans cope with the high cost of home purchase. If you're eligible for these grants as a first-time buyer, the cost of your HDB flat can be reduced by more than $100k!
In September 2019, changes were made to HDB grants which made home purchase even more affordable for first-time homeowners. These changes are summarised below:
Income ceilings will be raised to $14,000 for HDB BTO flats, and $16,000 for executive condominiums (ECs)
The Enhanced CPF Housing Grant (EHG) will replace the existing Additional and Special CPF Housing Grants (AHG and SHG)
Eligible first-timers can now benefit from the EHG when buying new or resale flats, regardless of flat type and location
But is relying on HDB grants for your home purchase be a problem? Are there situations where you shouldn’t take the grant?
Definitely. Here, we have a look at the implications of taking up HDB grants:
1. The HDB grant money will have to be ‘returned’
The cumulative amount from the various HDB grants can help flat buyers save a lot of money. Most Singaporeans gladly say 'yes' to the grants when buying their first home.
But nothing is free, so to speak. In fact, these grants may have to be ‘returned’ to your CPF account, in one way or another.
Firstly, HDB grants are credited into your CPF account and are not disbursed in cash.
Secondly, when you sell the property, you’ll have to return the HDB grant amount to your CPF account. Additionally, the housing grant you’ll have to return includes a 2.5% accrued interest, which is the interest you would have earned if your grant amount had been sitting in your CPF Ordinary Account instead of being used to pay for your home (see our next point).
Other than that, you might incur a resale levy when you decide to sell your flat to buy another HDB BTO or executive condo (EC). HDB's resale levy is used to maintain a fair allocation of public housing subsidies between first-timers and second-timers, by reducing the subsidy Singaporeans may enjoy for their second HDB flat or EC purchase.
The resale levy is only applicable in some cases:
You dispose of your HDB BTO and then buy a second subsidised flat from HDB
You dispose of your HDB BTO and then buy an EC from a developer
In other words, you need not pay a resale levy if you are buying any of these:
HDB resale flat
Private residential property
A Design, Build and Sell Scheme (DBSS) flat from a developer
An EC from a developer, where the land sale was launched before 9 December 2013
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2. Accrued interest from CPF Housing Grant
The main downside of using CPF money to finance your property purchase is the accrued interest payable.
Accrued interest is the interest amount that you would have earned if your CPF money had not been withdrawn for your home purchase. The accrued interest payable is computed on the CPF principal amount withdrawn for housing on a monthly basis and compounded yearly.
Whenever one uses their CPF money, whether to finance the downpayment of the property or to service the monthly mortgage loan, you will incur accrued interest which you’d need to return to your CPF account.
Let’s take a look at the difference in how much one will pay for those using 1) CPF for downpayment only, 2) CPF for downpayment and monthly home loan repayment, 3) without CPF at all:
Scenario 1: Using CPF for downpayment only
Let’s assume you are buying an HDB flat that costs $500,000. Of which, you paid 5% cash downpayment of $25,000 and the rest of the 20% using CPF money.
Assuming you held onto your flat for 30 years, you’d end up with $42,244 of interest payments due, bringing the total sum you’d have to return to your CPF to $142,244. This is calculated based on the current CPF ordinary account interest of 2.5%.
Scenario 2: Using CPF for downpayment and monthly home loan repayment
So you’ve decided that it’d be easier on your pockets to service the monthly home loan payment using money from your CPF Ordinary Account (OA) as well. Assuming you’ve first used the $100,000 from your CPF as downpayment, and you took a home loan of $400,000 from the bank. Based on a bank loan interest of 2.0% for a tenure of 30 years, your bank loan interest will come up to a total of $132,252. The total amount payable will be $532,252.
But that’s not all. Because you have chosen to pay your monthly loan with your CPF, you’d need to repay the accrued interest as well! Given the CPF interest rate of 2.5%, the extra amount you’d need to return to your CPF account for the loan of $532,252 will come up to $224,842.
In summary, for a $500,000 HDB flat purchase with a 2.0% home loan and a 30-year tenure:
Downpayment with CPF money and grants
Withdrawal from CPF
$400,000 + $132,252
Total payable to CPF
So essentially, for a flat that you bought at a $500,000 price, you’ll end up having to return a total of $899,338 to your CPF-OA if you sell your HDB flat after you've repaid your loan (and that's being optimistic about bank home loan interest rates).
And here's the kicker, you'll keep being charged accrued interest even after you've fully paid back your loan, because technically you still 'owe' money to your CPF-OA account!
Also, the lower your downpayment, the more you have to pay off using your home loan, and the higher the amount payable to CPF because of accrued interest ON TOP of your home loan interest.
If you had taken the HDB grant, you’ll need to repay it with accrued interest, as well as incur the resale levy if you are getting another subsidised flat after selling the current one.
While essentially the money is still yours (it’s returned to your CPF account), and you can still buy another property with that sum of money, it also means the opportunity cost of using your CPF money is very high. In the above example, you could have saved yourself $267,086 if you were able to finance your home purchase without the use of CPF money.
You'll have to pay back the money you took from your CPF account with accrued interest.
Scenario 3: The 'No CPF and CPF Housing Grant' approach
Obviously, CPF money is helpful for homebuyers short on cash, especially for the initial downpayment.
But if you and your partner have worked for, say, at least 10 years and have accumulated sufficient savings, you can consider not using CPF to pay for your flat, and not taking any HDB grants even if you may be eligible for it.
Remember, just taking a $50,000 HDB grant will incur an accrued interest of $13,588 over a 20-year period. Those who are eligible for a CPF grant of $100,000? You’d need to cough out a total of $127,177 when you sell your HDB at the end of 20 years.
But if you really want to own a home because you are getting married and don’t want to stay with parents/in-laws, or expecting a kid, or need cash for your renovation, then taking the HDB grant and using your CPF monies can help you bridge the gap in getting that dream home.
That said, take note of the future financial costs. The more grants you take and the more you pay your home using your CPF money, the more money you’ll have to return to your CPF account in the future. This also means potentially lower cash sales proceeds from the sale of your apartment.
Taking HDB grants is also advisable for those who are planning to hold onto the flat for life, which means you do not need to return your grants or pay any accrued interest! In fact, many aspiring Singaporean homeowners retain their HDB flat while saving up to buy a second, private property.
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How you can reduce the amount you need to pay back to your CPF-OA
Given how expensive it is to buy a property here, many would find it impossible to not use their CPF money at all. The key here is to understand the implications of using the CPF money, and choose ways to finance your property purchase without having to incur too much accrued interest.
One way to do it is to limit the use of your CPF money to only using it for downpayment. On the other hand, paying off your home loan instalment with CPF means you incur 'double interest' (home loan interest + CPF accrued interest).
Also consider what you do with your take-home pay. Using your CPF to pay off your home loan might be a good idea if you have a savings and investment plan or portfolio that gives you a yield higher than your home loan and accrued interest combined.
In every scenario, one thing's for sure: you have a house to pay off, and that takes financial discipline and astute planning, whether you're paying for it using your CPF-OA money or not. The opportunity of using CPF money and HDB grants is a chance to put your spare cash to work harder for you for long-term goals such as a second property or for retirement!
Who is eligible for CPF Housing Grant?
In order to qualify for the EHG, you’ll need to meet the following criteria:
You must be applying for a flat for the first time
Your average gross monthly household income for the previous 12 months can’t exceed $9,000
You must be continuously employed for the past 12 months prior to applying for the flat
For the full EHG grant, the flat must have a sufficient lease to cover the youngest buyer to the age of 95
If the remaining lease isn’t sufficient, the EHG given will be pro-rated
Exceptions are made for buyers of 2-room Flexi flats on short leases
You can’t own any private properties or land whether locally or overseas
You also can’t have disposed of any of these within the last 30 months
What is the Enhanced CPF Housing Grant?
The EHG provides higher grant amounts and will be available to more families and individuals, compared to the Additional CPF Housing Grant and Special CPF Housing Grant previously.
With the EHG, you can buy any flat type in any estate, so you have a larger pool of potential homes to choose from if you want to use the grant.
Do we need to pay back CPF Housing Grant?
Yes. When you sell your HDB home, you need to return CPF funds used for the flat, including HDB Grant plus interest into your CPF account.
How much HDB Grant Can I get?
The amount of HDB Grant is based on your income in the last 12 months. Below is the Enhanced CPF Housing Grant (EHG) amount for eligible buyers:
Average Monthly Household Income* Over 12 Months
Not more than $1,500
$1,501 to $2,000
$2,001 to $2,500
$2,501 to $3,000
$3,001 to $3,500
$3,501 to $4,000
$4,001 to $4,500
$4,501 to $5,000
$5,001 to $5,500
$5,501 to $6,000
$6,001 to $6,500
$6,501 to $7,000
$7,001 to $7,500
$7,501 to $8,000
$8,001 to $8,500
$8,501 to $9,000
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