Why we think this HDB messaging is a little iffy
Challenging conventional wisdom is hard, but important
For a while now, HDB has been shouting out that you can pay for your BTO flat fully with CPF, and with no cash outlay.
You can also see messages like this put up near BTO construction sites.
My guess is that after the spike in HDB resale prices post-COVID, with prices inching towards S$2 million, the intention is to remind people that BTO flats remain affordable (and objectively by global standards, they are).
However, I think there are subtle implications of defining affordability as ‘little or no cash outlay.’ In addition, the messaging makes it seem like paying for your home with your CPF funds is a default choice.
But it’s a choice that has consequences, too — and we’ll explain further in this article.
How CPF became a housing fund
When CPF first started, it was meant purely as a retirement account. But in 1968, and 1981, Singaporeans were allowed to use the funds from their Ordinary Account (OA) to purchase HDB flats and private property respectively.
By allowing CPF monies as a source of funds, more Singaporeans could own homes; the thinking back then was to give people a stake in the country. I think that was a good move for a fledgling city-state.
But in 2025, Singapore is still a young nation, but a wealthy one that provides its citizens with a high standard of living. It’s become a desirable place to live, for people around the region. Perhaps even the world.
And so while many Singaporeans still use their CPF to pay for housing, I think there are two unintended consequences of this policy.
#1: People empty their CPF without planning for retirement
Conventional wisdom in property-mad Singapore is to “empty your CPF OA” when purchasing property. This is because the money “cannot touch until you are old” anyway.
The result: Many people empty their CPF funds to pay for housing, then fail to build long-term retirement savings outside of the CPF ecosystem.
They are reliant on “cashing out” their HDB flat to retire — either by downsizing to a smaller home, or selling back their lease to HDB through the Lease Buyback Scheme. Need evidence? Consider the number of lamentations amongst the elderly about being asset rich, but cash poor.
Conventional wisdom is problematic in this case. (And I’d argue that HDB’s messaging is supporting conventional wisdom.)
Why?
You see, when you buy a house using your CPF funds, you’re actually “borrowing” the money from your future self to pay for your housing. Not only do you not earn interest in your CPF account, you’d also have to pay accrued interest when you sell your property.
Accrued interest is quite technical and beyond the scope of this article to discuss, but here are some further reading if you’re interested:
This would not be a problem if you had invested your cash (that would have otherwise gone to paying the mortgage) for your retirement.
But let’s be real. Most Singaporeans hold the majority of their net worth in real estate, and don’t invest outside of property and their CPF.
#2: It warps people’s ideas of the home they can afford
You might find this scenario familiar:
An acquaintance neither saves nor invests. They spend most of their paycheque every month. A classic overspender.
However, when he eventually needs to buy a home, all’s good. He checks his CPF OA balance and is pleasantly surprised to find that he has over $100,000.
Without a second thought, he empties it to buy the most expensive home he can afford. He doesn’t care about the long-term sustainability of his mortgage. He does not plan for the possibility of unemployment or reduced income.
During times of financial hardship, he struggles to service the mortgage.
In this scenario, ‘no cash outlay’ would have inadvertently enabled reckless spending behaviour.
I’d argue that people would make more calculated and disciplined housing decisions if they had to pay the mortgages and downpayments in cash.
Also somewhat related: On the resale market, this practice may contribute to rising HDB prices and cause affordability issues. The more funds buyers have at their disposal, the more sellers can ask for – which then pushes resale prices upwards.
To be fair to HDB…
These signs are likely targeting would-be first time home owners who typically do not have the cash to pay for a flat upfront. The intention could be to make the prospect of home ownership less daunting.
They could also just be playing into conventional wisdom, looking for a simple way to show that the flats are affordable.
As people who put out complex messages ourselves, we also know the limitations of communication. If you say or disclaim too much, people might not even read the message.
But with our personal finance hats on, we think that there’s a high chance it might be misinterpreted and oversimplified.
(HDB say pay with CPF one what!)
Final thoughts
There’s nothing wrong with paying for your house with CPF. But we need Singaporeans to understand the trade-offs first:
You will be depleting your retirement funds.
You will incur accrued interest.
You might have real temptation to overspend your CPF monies.
Hence we think the practice should also not be presented or encouraged as the default choice. Or be a benchmark of what ‘affordability’ means.
Especially when it comes from the horse’s mouth.
Stay woke, salaryman.
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