A lot of young seniors in their mid 50s will have kids in their early 20s. They are likely to buy a new property using the SA and OA in their kids' name.
Well, in early 2025 SAs will be closed for all members age 55+. So this’ll affect some 65 and 75 year old members, as examples. It’s more than just mid-50s members.
However, these members were already typically earning a composite rate of 3.X% or even 2.X% on their withdrawable CPF savings. That’s because OA balances drag the effective interest rate down. Even T-bills are currently still yielding north of 3.6%. We’ll see what 2025 brings, but SA+OA interest isn’t currently typically terrific. If a parent or grandparent wants to buy a house using these CPF dollars they’re probably already doing it.
There are a very few weird people who shielded SA who are getting closer to 4.08% currently. Those people will still have RA available thanks to the turbocharged ERS rise. There are very, very few people with SA balances that can’t be fully absorbed within the ERS increase.
Hence, the kids will have a down payment gift but they will have to pay the instalments if they are already working. So we are likely to see a lot of 1 and 2-bedders being snapped up in the market from next year.
But there’s another problem: do this and you effectively nuke the child’s (or grandchild’s) ability to buy a HDB flat. There’s a new(ish) rule requiring private property owners to sell, wait 15 months, and then they can buy HDB flats. To the extent CPF members redirect these dollars to housing it could have divergent effects, conceivably even reducing net demand for HDB flats.
This is similar to the price surge in properties when CPF OA was first allowed to buy properties.
I don’t think it’s that similar. These CPF dollars are already liquid. If they’re redirected into homes they become fairly or very illiquid, a very different proposition. A proposition which is already available. The only thing that’s changing is the effective interest rate on these dollars (SA+OA) is decreasing, although it’s fully recoverable within CPF for the vast majority of members via RA (and correspondingly higher lifetime retirement income) and MA for those who wish. If members want liquid substitutes then they’ll first be finding higher-than-2.5% fixed deposits, T-bills, and SSBs as notable examples. Homes are not a close substitute, and even then any member with an outstanding high or moderate rate mortgage is likely to retire their own mortgage first.
On top of all that, if there’s any there there the government will hike ABSD literally overnight. Which will be very effective.
Net net, I’m not expecting any big impacts on home sales. Speaking for my household anecdotally, we plan to peg at the new, higher ERS (one spouse can do that, the other to follow), keep MA pegged at the BHS, withdraw any surplus landing in OA (and every month too), and plow the surplus atop long-term investment flows (i.e. low cost stock and bond index funds). And maybe marginally enjoy life a little more. Buy the new 2025 iPhone SE, perhaps.
Conceivably we’d reduce ordinary bank account balances for day to day spending in favor of keeping some OA dollars on account since those dollars are liquid (for the spouse age 55+), basically like a 2.5% interest savings account. But that’s just ordinary cash management sort of stuff. This 2025 change is extremely unlikely to affect our household’s or extended household’s property-related decisions.
