The effects of using CPF savings for HDB flat purchase
If you own a HDB right now, chances are you might have purchased and paid your HDB using your CPF savings. Do you know you have to refund back the following to the CPF savings account when you sell your HDB?
a) The principal CPF amount which you have withdrawn for the house; and
b) The accrued interest which you would have earned if the savings were not taken out from your CPF account.
For example:
A HDB flat is purchased at $500k and is paid fully from CPF. After 10 years, the amount to pay back to the CPF saving with accrued interest is about $640,042 (See Table 1). This means that the owner must sell his house at $640k just to breakeven.
Therefore, the longer you hold on to your HDB flat with the CPF money tied to it, the higher the accrued interest you must return to your CPF savings due to the interest compounding effect.
Since 2013, the HDB resale price has start to stabilise (See Diagram 1) and it is likely to continue to be so to keep the public housing affordable for Singaporeans. If you are the lucky owner who has bought a flat around 2008, you could have experienced the windfall effect that public housing has upon your HDB. In another word, the chances of you getting a reasonable good amount of cash proceeds is high.
Imagine after 30 years, the HDB resale price did not appreciate further and your CPF money is still locked in the flat with the accrued interest continuing to grow, what could potentially happen? You could end up not getting your expected amount of cash proceeds that you thought you could get from the flat.
Therefore, if you plan to upgrade, it is best to work out the amount that you can cash out as soon as possible so that you can maximise the return and reinvest your money to a new home that could potentially give you a higher return.