By Property Soul (guest contributor)

Disclaimer: This article is not sponsored by the Central Provident Fund Board. Although I am grateful that my 3-3-5 rule was endorsed by CPF 3 years ago, I am not obliged to return the favor by encouraging the public to deposit spare cash into their CPF account. All views expressed in this post are my personal opinions. Readers are advised to refer to the CPF website for details, or consult the CPF Board for decisions concerning their own account.

I became a Singapore PR under the Approval-In-Principle scheme the year I relocated to Singapore in 1998. My Singapore citizenship was approved four years later.

CPF was something new to me. Initially, I was not comfortable with it. CPF took away 20 percent of my pay and another 20 percent from my employer. Could you imagine if every month this 40 percent more salary was credited directly to my bank account instead?

It is the same feeling when our parents or spouse tell us that, from now on, they will keep our pay and manage our money – to make sure we won’t overspend.

Singapore’s founder Mr. Lee Kuan Yew once said, “If Singapore is a nanny state, then I am proud to have fostered one.”

Now I had no choice but obligingly contribute to my CPF account every month. I had to think of a way to make my CPF money go back to my pocket.

Using CPF money to invest in properties: Then and now

1) What happened then

Back then I could only use part of the money from my CPF Ordinary Account to pay for mortgage or children’s education. It implied that I had to buy rather than rent, or be a mother and wait for my child to use it for education.

As a single under 35-year-old, the only way to withdraw CPF money was to buy a private property. In 2002, I bought my first private home and withdrew from my CPF account to pay for downpayment, stamp duties and the monthly mortgage.

The 1-bedroom condo unit was rented out at $1,800 per month. I used the cash from the tenant to pay for the maintenance fee, property tax and my own rent (which was $550 for a master bedroom in a private apartment). This created a good positive cash flow every month. I saved up the surplus and was soon ready to buy my second private property the next year, and the third one the year after. With Singapore opening its doors to foreigners, the rental market improved and rent shot up in the next few years.

When I sold my investment properties after keeping them 5 to 8 years, I had to refund the money I borrowed from my CPF account with interest. I was surprised that the accumulated total interest was quite a substantial amount. Fortunately, I had always ensured that my rental properties could generate minimum 5 percent net return. The rent could cover the 2.5 percent interest owed to CPF plus another 2.5 percent interest I would have earned should I keep the money in my account.

Anyway, the accumulated interest payable to CPF was small compared with the profit made. After cashing out I enjoyed a net profit of 80 to 120 percent and an average annualized return of 10.8 percent. The magic of 80 percent leveraging is: When your property doubles in value, your 20 percent downpayment now increases fivefold.

2) What happens now

In retrospect, I was very lucky. Many things have changed since then. Besides the additional restrictions and costs of TDSR, ABSD and SSD, nowadays it is almost impossible to find any private property that can generate 5 percent net return, due to high property prices and low rental rates. Landlords are happy if their properties can generate a slight positive return. Many are subsidizing tenants to stay at their properties, with rents unable to cover expenses. Some cannot find tenants and leave their properties vacant, while they are still paying the same maintenance fees and property taxes.

Next time after they sell their properties, they have to pay 2.5 percent interest when refunding the amount to their CPF account. If they hadn’t withdrawn their money from CPF to invest in properties, they would have enjoyed 2.5 percent interest in their Ordinary Account. All in all, they are paying 5 percent interest from any amount withdrawn from their Ordinary Account.

For investors who bought near the peak of the property market, how long do they have to wait for prices to recover and recoup the losses they accrued over the years?

Take some hints from a recent article “Lesson from man who lost most of his CPF money” (The Straits Times, October 11, 2020)

Just look at the maths – the majority of people who invested their CPF money were better off just leaving their funds in their Ordinary Account (OA), which earns a guaranteed 2.5 percent each year.

For instance, from October 2018 to September last year, 54 percent actually did worse, with 32 percent suffering losses. The other 22 percent did not suffer any losses on their investment, but their returns were less than the interest that they would have received from CPF.

The results are likely to be worse this year, considering that many businesses around the world have been hit by the pandemic.

The article recalled the incident of a middle-aged man walking in Raffles Place last February, telling people how he withdrew $250,000 from his CPF account to invest but suffered a 95 percent loss, leaving only $11,200 for his retirement.

The article ended on a serious note: Our life expectancy is getting longer. Don’t gamble with your CPF money and put yourself at risk of poverty in old age.

If you are not good at investment, doing nothing is better than doing the wrong thing. Don’t believe in anyone who tries to talk you into investing in anything, especially during these uncertain times. Don’t listen to the BS that interest rates are low or there is going to be runaway inflation. Chances are: The salesperson gets the commission, but you lose all your hard-earned money. Your chance of recouping your losses is slim in a bad economy.

Do not make the same mistakes of past downturns, when some people could only hope for their battered investment to recover after they expended their resources early in the game. After all, making less money is better than losing a bit of your nest egg.

– The Straits Times Invest Editor Tan Ooi Boon

Recently, the promise of cheap money and low interest rates make people think that they can take higher risks and more debts. They forget that interest can be accumulated and compounded. They forget the huge number of defaults when mortgages were reset at higher interest rates before the subprime crisis.

Years of low interest rates led to excessive risk taking in commercial real estate and will make the current economic downturn even more severe … Regulatory authorities should have been able to see conditions building up that would make any unexpected crisis worse…. the slow build-up of risk in the low-interest-rate environment that preceded the current recession likely will make the economic recovery from the pandemic more difficult.

– Boston Federal Reserve President Eric Rosengre, “Years of low interest rates made the current economic crisis worse, Fed’s Rosengren says” (CNBC, October 8, 2020)

CPF money is meant for retirement

When I read The Straits Times Invest Editor Tan Ooi Boon’s article “How to make your extra cash work harder” (The Straits Times, October 11, 2020), there are many good points that struck a chord with me.

1. CPF money is your money, not the government’s money

“Every time the Central Provident Fund (CPF) is mentioned, some self-proclaimed “savvy” investors will roll their eyes and view such advice as government propaganda to stop citizens from withdrawing their money … unlike private investment companies, the Singapore Government is not in the business of making profits out of its citizens.”

This is pointing directly at a younger me pondering how to withdraw CPF money to make more money. It is not about distrust of the authority. It is the excitement to prove that I can beat the system.

Fast forward to 2020, life experiences have humbled me over the years. With age, I gain wisdom and insights. I am also in a different life stage now. Hitting the age of 55 is not that far away. I am looking forward to the day when I can open my Retirement Account and receive a monthly CPF payout.

2. Make the most out of the interest in your CPF account

Singapore just entered its worst recession in 55 years. These days if you tell people that you are still making good money, you either lose all your friends or risk being robbed.

When times are bad, every dollar counts. Here are some ways recommended by The Straits Times to make the most out of interest payable in your CPF account so you won’t lose out. To do so, you can download the SingPass Mobile App to access CPF E-Services, or log into the CPF portal.

– Your Special Account pays 4 percent interest which no Singdollar fixed deposit can match. If you are below 55, top it up with money from your Ordinary Account to the maximum of $181,000 to enjoy an annual interest of $7,240.

– If you are turning 55 in 2020, top up your Retirement Account (Ordinary Account + Special Account) to the maximum of $271,500. From the age of 65, you will receive $2,180 a month for the rest of your life. Say you live up to 85, in 20 years’ time, you will receive $523,200 in total payout.

– If you top up in cash for your own Special or Retirement Account or those of your family members, you can claim tax relief in the following year for up to $14,000.

For more details on desired monthly payout with minimum CPF savings, refer to the CPF Retirement Planning Booklet.

3. Refund your housing loan withdrawal

I know some people like to keep a lot of spare cash in fixed deposits for a rainy day even though they still have a housing loan to pay. Since the savings rate is so low now, it makes more sense to use some of this cash to pay off the housing loan in lump sums, as its rates are still about three times higher than what you get from fixed deposits.

– The Straits Times Invest Editor Tan Ooi Boon

I made the mistake of using money in my Ordinary Account to pay off our current home 8 years ago. I just found that I have accumulated tens of thousands in accrued interest, not to mention losing my 2.5 percent interest should I have left the money intact in the account. Now I am using spare cash to do the refund.

If you too want to make a housing refund, find the “Property” section by clicking “click to view more”. First check the “Net Amount Used” and “Accrued Interest”. Then go to “My Requests”, under “Property”, click “Make a Housing Refund with Cash”.

Think about it: If you have withdrawn money from your Ordinary Account to pay for downpayment, stamp duties or monthly mortgage, you are paying 2.5 percent interest to CPF every day. For a withdrawal amount of $200,000, in 30 years, you will have accumulated a total interest of $219,513.5. That means when you sell your home after 30 years, you have to refund a total of $419,513.5 to your Ordinary Account. The amount will be more if you are paying your monthly mortgage from your CPF account. Are you confident that, after selling your home and refunding your CPF withdrawal with interest, you still have enough savings for retirement?

By guest contributor Property Soul, a successful property investor, blogger, and author of the No B.S. Guide to Property Investment.

[Disclaimer: The main aim of is to provide good sources of information and opinion on the Singapore property market for our readers. These sources come from a broad mix of experts, who could be independent bloggers, analysts, and real estate professionals. We do not publish anything we feel is overly promotional or lacking substance, and do not get paid to post articles (any ads you may see will be clearly marked). That being said, you should be aware that every guest contributor has their biases, and so you are less likely to see an article from a property agent (for example) that will be negative on the market.]

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