Should You Take a CPF Grant to Buy Your HDB Flat If You Are Eligible?

The government in Singapore is committed to the welfare of the people in every single way. Since housing forms an important aspect of life in Singapore, the government tries to provide grants and aids to citizens to help them own homes.

If you belong to one of the lower income strata, you can get grants from CPF to buy yourself an HDB flat. While CPF housing grant is useful, one must remember that this grant isn’t free and has to be repaid. Although the rate of interest levied is more stable than bank rates, it sits higher than normal at 2.5%. In addition, if you sale your HDB flat, you may have to pay HDB Flat Resale Levy. So, you may be paying back an amount which is substantially higher than what you had borrowed.

There are quite a few common misconceptions surrounding CPF grants available for HDB flats. A deeper insight into the pros and cons of the grant will help you make a more informed decision in future.

Separating Fact From Fiction!

Busting the myths around CPF grant for HDB flats is important if you want more clarity regarding the regulations governing the grant. The following questions and answers will help you decide whether a CPF housing grant is perfect for you or not.

Q: Is CPF housing grant a loan?

A: A CPF housing grant is not exactly a loan although it resembles one in terms of functionality. Monies in your CPF account should ideally be used for a comfortable life post-retirement. Hence, money you take out from your Ordinary Account in the form of a housing grant has to be repaid with interest.

The simple logic behind imposing a heavy interest is that the money in CPF account would have earned you interest, had you not withdrawn the money. That would have helped you build a comfortable cash cushion after retirement. By returning the borrowing with an interest, you’re ensuring the primary benefit of the scheme isn’t violated.

Let’s consider an example. If you have taken a housing grant from CPF on a 30-year lease at the age of 25, you may not have to repay the due at the end of the tenure. This is because CPF will allow you  to withdraw any amount from your CPF account which is in excess of the Full Retirement Sum or Basic Retirement Sum, subject to availability of sufficient pledge or property charge in your Retirement Account.

So, if you have kept a portion of your CPF savings separately for the minimum retirement sum, you needn’t bother paying back the grant with interest.

Q: Can the grant be used for cash down payments?

A: If you’re taking a bank loan in Singapore to fund your HDB flat purchase, you’ll generally have to make a 5% down payment in cash. However, the grant offered by CPF for HDB properties isn’t disbursed in the form of cash. The grant will be made available in your CPF Ordinary Account to be used to offset the purchase value of your home or to pay off your mortgage. So, you’ll have to make separate arrangement for cash for taking a home loan from a bank in Singapore.

Q: Is the amount of grant higher for those with lower incomes?

A:This is only partially true. If your household income over the last 12 months hasn’t exceeded S$5,000, and you and your co-applicants are applying for the first time, you can make a claim under Additional Housing Grant (AHG) for a grant of up to S$5,000. If your application has been chosen from the July 2013 to May 2015 sales bunch, you’ll be eligible for a grant of up to S$5,000 under Special Housing Grant (SHG), too. For applications starting from the November 2015 sales bunch, the maximum “household income over the last 12 months” criteria has been raised to S$8,500. The grant available will be S$5,000. For a first-time applicant, a total grant of up to S$80,000 may be available, combining AHG and SHG.

However, if you have no income, you may not get a grant because CPF would consider you to be incapable of servicing your loan or returning the money back to your CPF account.

Q: What is a resale levy?

A: If you’re planning to sell your first HDB property bought with CPF housing grant and buy another one, you may have to pay a hefty resale levy. A household with multiple co-owners or occupants may have to shell out up to S$55,000 for an executive condominium. A single owner may have to pay up to S$25,000 in resale levy for selling an executive flat (single owners aren’t eligible for executive condos).

This means that you’re paying back a significantly higher amount than what you had borrowed. It also means that you may not be left with much cash from proceeds of the sale of your flat.

The aim of the grant is to satisfy your basic housing needs. If you’re looking at HDB properties from an investment perspective and want to use the grant as a means to fund your aspirations, it may not turn out well.