With rising property prices in Singapore, here's why homeowners should invest their CPF savings
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With rising property prices in Singapore, here's why homeowners should invest their CPF savings

Nov 2022
Jul 2022
  • More OA savings went to property purchases in 2021
  • Investing your remaining CPF monies can help you beat the 2.5% rate
  • Learn why and how you should diversify your investments beyond illiquid assets such as property

More CPF OA monies used in buoyant property market

The Central Provident Fund (CPF) Board’s latest annual report showed that the amount of Ordinary Account (OA) savings withdrawn to finance housing purchases grew about 26.5% year on year to hit $21.9 billion in 2021.

This jump is given that many of us in Singapore use our CPF OA savings to pay our downpayment, stamp duties, and monthly mortgage instalments.

The higher withdrawals for housing also came amid soaring home prices. That’s before new cooling measures were introduced in an attempt to temper demand in the private residential and HDB resale markets in late December 2021.

Repaying CPF after selling your home

The more you withdraw from your CPF savings to buy a property, the more you will need to fork out to replenish your CPF account in the future if and when you sell the property.

This is because when homeowners sell, they are required to refund the full amount of CPF monies used, plus the accrued interest (which currently stands at 2.5% a year) that they would have earned if those funds had remained in the CPF account.

Bear in mind that the accrued interest on CPF funds as well as on a bank or HDB loan – especially with mortgage rates on the rise today – can often accumulate rather quickly. 

Your sale proceeds will be used to pay off the outstanding housing loan you took to buy the property and to refund the CPF amount used for the purchase. If the selling price is not enough to fully refund the CPF monies used and the accrued interest, this is often dubbed as a “negative sale”.

Homeowners who sold their properties at or above market value do not have to top up the shortfall in cash, in the event of a negative sale. However, importantly, this also means that such individuals will have less CPF savings to tap for their next property or for retirement purposes.

Those who sold below market value, in a negative sale, will have to make up the difference of what is owed to CPF. This is often paid out of their own pocket, given that the cash proceeds from the property sale would be insufficient to cover the shortfall.

Bar graph on number of people who sold their property and refunded CPF used

Record high top-ups and withdrawals for housing needs

CPF OA savings that were withdrawn to pay for home purchases climbed to a new high of $21.9 billion in 2021, up from $17.3 billion in 2020 and $17.8 billion in 2019. 

Of this $21.9 billion, slightly more than half – about $12.3 billion – went into buying HDB flats, and were withdrawn by roughly 750,000 CPF members, CPF said in its annual report.

Meanwhile, some $9.6 billion in OA savings were used to purchase private homes and executive condominiums during the year, by 246,000 CPF members.

As seen from this chart, the total withdrawals for housing needs in 2021 had set a fresh record, surpassing even the levels in 2013 and 2018, when the housing market had previously peaked.

Line graph comparing amount people are withdrawing from their OA savings for home financing

You may also choose to refund the CPF monies into your OA even when you are not planning to sell your property. This can be done any time and with any sum, up to the full principal amount withdrawn for the home plus accrued interest.

By doing such refunds voluntarily, you can grow your CPF savings – and, in turn, the amount that is investible – as well as refund less to OA when you sell the property, and receive more cash proceeds upon the sale. CPF last year highlighted the rising trend in voluntary housing refunds: 14,980 members refunded nearly $1.5 billion in 2020, up from 5,500 members with $513 million in 2019.

More homeowners have beat 2.5% p.a. with CPF investing

It is crucial to enable our remaining CPF balances to work harder for our retirement needs, and to offset the accrual interest impact of refunding the monies when you decide to sell the property.

One way to achieve this is by taking on some risk and investing our OA savings for the long term, with the aim of achieving returns greater than the OA interest rate of 2.5% per annum (p.a.). Another option is to transfer OA funds to the Special Account (SA) to take advantage of SA’s higher interest rate.

The most recent update by CPF showed that 83% of CPF members who invested their CPF savings made more than 2.5% p.a. during the financial year ended 30 Sept 2021.

Performance of CPF members who invested their CPF savings

Moreover, investing your CPF balances will help you build a diversified portfolio across different asset classes, and not just have your funds locked in illiquid assets such as property.

Under the CPF Investment Scheme (CPFIS), OA balances can be invested in a range of products including stocks, bonds, and unit trusts.

As of the end of 2021, about $17.1 billion of OA savings have been invested by 977,000 and 272,000 CPF members respectively.

At Endowus, our CPF Flagship Portfolios are created with low-cost, diversified funds. Despite market uncertainty brought on by Covid-19, the CPF Flagship Portfolios delivered positive returns for most clients in 2021, generating 17% in returns for the 100% Equity Portfolio.

Read about how Endowus has improved CPF investing in Singapore from this link. To find out more about our Endowus Flagship CPF Portfolios, click here.

To grow your retirement savings, you can also make cash top-ups and CPF transfers to your SA or Retirement Account (RA). 

Voluntary top-ups to SA and RA balances rose to a record high of $4.8 billion in 2021, up 60% from $3 billion in the previous year. These top-ups were made by 294,000 CPF members, with more than half of them doing so for the first time.

Total CPF members’ balances grew by 9.4% on the year to hit an all-time high of $505.7 billion as at the end of 2021, the report noted.

CPF is an important part of our retirement goals, and we should be cautious with managing and investing it. Endowus has been an advocate for Singaporeans to manage their CPF better. Invest now for better peace of mind in your retirement years.

Learn more about our options on CPF investments, or read more on CPF on Endowus Insights.

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