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Prospective buyers can no longer use CPF savings to buy commercial properties

A RECENT rule change that stops people using their Central Provident Fund (CPF) savings to buy commercial properties has claimed an unexpected victim.

The fledgling market for small office, home office (Soho) apartments has been hit, with 80 per cent of prospective buyers at one development walking out the minute they realised their CPF savings cannot be used for the purchase.

Soho units, which allow buyers to live and work within the same space, are approved for office use and usually come furnished with kitchens and bathrooms.

They were designed to encourage city living and the few projects with Soho units are mostly downtown, such as Far East Organization’s Central above Clarke Quay MRT station.

But a Soho development being built in Joo Chiat Road by Shining Holdings has seen an initially strong demand almost completely vanish, after the change in CPF rulings took effect on July 1.

When it first sold The Modules in May, 25 of its 48 units were snapped up within a few weeks. But in the more than two months since July 1, only three have been sold, said marketing agent OrangeTee.

It added that this is mainly due to the CPF Board phasing out the Non-Residential Property Scheme in July.

The board said the scheme - introduced in 1986 to allow members to enhance their CPF returns by investing in property other than homes - is no longer relevant as members can now invest their savings in property funds rather than directly in shops and offices.

But this means potential buyers who could have used CPF savings for the down payment and monthly instalments on a Soho unit must now fork out funds for both in cash.

‘On average, about 80 per cent of people who walk in to ask about the project turn around and walk out after they find they can’t use CPF to buy the units,’ an OrangeTee agent told The Straits Times.

Soho apartments in prime districts are still selling well, as they attract buyers who do not have to rely on CPF funds.

Southbank near Lavender MRT station sold all 60 of its Soho units after July 1, said marketing agent Knight Frank.

As for Far East’s Central, few units have been sold this year as marketing has been temporarily halted. Thus it could not gauge the impact of the CPF changes.

But property experts said that, looking ahead, the new rule may dampen the Soho market, which is relatively new.

‘The ruling would probably affect singles and young couples with no kids who plan to use Soho units as their primary home,’ said a consultant.

The impact on the Soho market is likely to be greatest in developments away from the city but not many developers plan to build Soho units away from the city.

Mr Nicholas Mak, director of research and consultancy at Knight Frank, said the ruling ‘appears to go against the grain of trying to encourage entrepreneurship’, as Soho units allow buyers to use their office space as homes.

‘To the extent that it curbs demand for Soho apartments, it will also give developers less incentive to build such units, which may lead to less supply in the already small Soho market,’ he said.

The market is not likely to grow soon. Two developers that had been planning projects with a Soho component now say they will not sell such units.

CapitaLand’s Selegie Complex will have Soho units, but they will be leased rather than sold, the firm said yesterday.

United Engineers also said last year that it would include 160 Soho units at its upcoming Vista Xchange at one-north.

But it has clarified that the units - now reduced to 60 - will be ‘Soho-style’ homes and not actually zoned for commercial use.

fiochan@sph.com.sg

Fledgling market SOHO units, which allow buyers to live and work within the same space, are approved for office use and usually come furnished with kitchens and bathrooms.

They were designed to encourage city living and the few projects with Soho units are mostly downtown, such as Far East’s Central above Clarke Quay MRT station. The impact on the Soho market is likely to be greatest in developments away from the city but not many developers plan to build Soho units away from the city.

Source : Straits Times - 8 Sept 2006

68% more sought to buy commercial property in the year before CPF change

The Central Provident Fund Board’s changes to schemes relating to property purchases may have little impact on the market, but some will lament lost opportunities for investment nonetheless.

Perhaps spurred by the impending demise of the Non-Residential Property Scheme (NRPS) - which allowed Central Provident Fund (CPF) members to use their savings to buy commercial property - a CPF spokesman said 760 people had applied for the scheme since its abolition was first mooted a year ago. The number of people may be small, but it is an increase of 68 per cent from the year before when 453 applied.

The CPF Board decided to drop the NRPS because under the CPF Investment Scheme, members can still invest in commercial property. In addition, CPF said the take-up rate of NRPS had been low and the number of new applications had declined over the years.

It is not known what type of commercial properties have been bought under NRPS, which allowed for a wide range, including offices, shops and industrial space. Chesterton International’s head of research and consultancy Colin Tan says it is more likely to be office space. ‘The jump in numbers could be due to higher numbers buying strata offices as the very positive market sentiment during that period was that office properties are finally on their way up and in a big way.’

CPF figures also show that the number of members who had used CPF savings to buy more than one property was surprisingly small - 50,337 as of May this year. This represents 3.4 per cent of all CPF members under the housing scheme - about 1.46 million.

>From July 1, CPF has introduced new restrictions on the use of savings to buy second (or more) homes, and this too will give people fewer investment options.

As of March 31, the number of members who had taken part in CPF’s Public Housing Scheme was about 1.3 million. The net amount withdrawn was $75.6 billion. The number of participants in the Residential Properties Scheme - for private property - was less at 218,000, though the net amount withdrawn was $43 billion. Almost $120 billion has been used to buy property, but this will change in the future.

Propnex chief executive Mohamed Ismail reckons most people using their CPF savings for a second home, especially those who live in public housing, buy private residential property because it is seen as an investment. ‘An HDB flat is not seen as a second property.’

Still, to what the extent the intended effect of this restriction - which is to curb over-investment in property - is realised will depend on Singaporeans’ appetite for property investment. And some are hungry.

Source : Business Times - 4 July 2006

Of the 4 changes effective from July 1, 2 will impact trade directly

Changes to Central Provident Fund (CPF) schemes announced a year ago will take effect on July 1, but property consultants do not expect them to have a significant effect on the property market.

Of the four changes, two - the phasing out of the Non-Residential Properties Scheme (NRPS) and restrictions on the use of CPF savings for multiple property purchases - will impact the market directly.

>From next month, only those who have set aside the prevailing Minimum Sum cash component of $47,300 in their Ordinary and Special Accounts can use their CPF savings on a second property. But Singaporeans’ appetite for property investments has been waning anyway.

‘In the past couple of years, there have been people who lost money in the property and stock market, and they are now more careful about how they invest their money,’ said ERA Real Estate vice-president Eugene Lim.

View the CPF Board’s press release

On dropping the NRPS, the CPF Board said earlier that take-up had been low. The scheme covers commercial properties including offices, warehouses and shops. Mr Lim expects buyers of retrofitted shophouses in the $1 million price range to be most affected. But even so, this is not a large market.

Knight Frank director Nicholas Mak said the changes are meant to have more of a ‘mid- to long-term effect’.

CPF changes that took effect earlier - allowing non-related singles to use CPF savings, and extending the cap on the age of leasehold properties that can be bought with CPF savings - may have had a positive effect on the property market.

Mr Mak said the latest changes are likely to curb ‘over-investing in property’ especially for buyers in the ‘upgrader and mass markets’. He added: ‘Previously, this segment of buyers would have had more liquidity to buy bigger units.’

Although the property market seems to have had a ’shot in the arm’ from the buoyant high-end segment, Mr Mak said ‘the recovery of the mass-market has been less than spectacular’. As such, he is concerned that the changes could contribute to the slow pick-up of the mass market.

In the latest analysis of property transactions in Q1 2006 by DTZ Debenham Tie Leung, the number of transactions by purchasers with Housing Development Board addresses have fallen 14 per cent quarter on quarter.

DTZ executive director Ong Choon Fah, however, believes the mass-market is hampered by a lack of new launches. Noting that the take-up at GuocoLand’s The Quartz in Buangkok is ‘quite decent’, she adds: ‘There will be no impact on the mass-market from the CPF changes because most are buying their first property.’

The other CPF changes that take effect from July 1 include the transfer of excess Medisave Account contributions to Special or Retirement Account instead of the Ordinary Account, and the increase in CPF Minimum Sum, Medisave Minimum Sum and Medisave Contribution Ceiling.

Source : Business Times - 14 Jun 2006