IPS forum on CPF: Housing and the CPF.

The next speaker was Associate Professor Lum Sau Kim who is the Director of Graduate Programmes in the Department of Real Estate in NUS.

She spoke about what I would call the love affair Singaporeans have with real estate. Housing takes a big chunk of our CPF money. It is the dominant use of our CPF money, she said. 

Many would completely exhaust their CPF money for housing. Many people actually leverage as much as possible and buy the biggest homes possible.

Prof Lum said that, in effect, many are using housing as their pension funds and this is, in part, due to the lack of alternative investment vehicles. AK feels that this phenomenon can also be described as an overconsumption in housing and regular readers will remember that this is something I blog about often. 

People mistakenly think that their homes are investments when they are in reality consumption items unless they decide to rent out a room or two if they have spare rooms.

Prof Lum also made a good point on how due to Singapore's demographics, demand will not support higher prices of housing in future. Bigger flats will go down in prices faster than smaller flats as seniors downsize their homes, monetizing their bigger flats.

"Managing house price expectations is key. Otherwise, as we hit various demographic bumps, there may be clustering or cohort effects where the simultaneous rebalancing of household portfolios induces new shocks to the system, for instance in asset sales." Prof Lum.

We should also remember that with 99 years leases as the norm, as properties age and have less than 60 years left to their leases, it becomes harder for buyers to get financing. 

So, prices of such older properties could also suffer declines when the time comes. What the sellers are doing are selling the tail end of the leasehold.



Click to enlarge.

Interesting? I believe that this was something I cautioned readers about before on the buying of HDB flats with relatively shorter leases left.

In conclusion, please be prudent in the purchase of our homes. Do not over-consume thinking that housing prices will only go up and never go down. 

Housing prices and rentals are volatile and thinking of our homes as our future pension funds could be a bad idea.

See slides: here.

Related posts:
1. AK attended forum on CPF.
2. Buying an apartment: Considerations.
3. Don't think and grow rich.
4. Never lose money in real estate?

IPS forum on CPF: Future needs and wants of seniors.

The next speaker was Associate Professor Tan Ern Ser from the Department of Sociology in NUS. His presentation looked at three categories of seniors aged 55-65, 65-74 and those 75 and older.

In general, younger seniors as well as male seniors do better in having CPF savings. More older seniors receive retirement funding from their children compared to the younger seniors. 

This, to me, shows that the CPF has become a more important part of retirement funding for Singaporeans and will continue to be so for younger generations, basic safety net though it may be.

Prof Tan also revealed that despite some worries, most of our seniors have seemingly been prudent with the CPF money they withdrew. See table below:

Usage of withdrawn CPF money.

Frankly, if I were to withdraw my CPF money just to plonk almost half of it in a savings account, I would rather leave it in the CPF to earn 4% per annum in interest. 

Of course, this could change in future. Who knows? By the time I reach 55 years of age, fixed deposits in the banks here could attract interest payments of more than 5% per annum.

What I also found interesting is in the next slide:

Prof Tan asked whether good relationships with children lead to financial adequacy for the seniors or does financial adequacy of the seniors affect their relationships with their children? 

Well, I think that if the reliance on children should be an important part of some people's retirement planning, then, this could be an interesting question to ponder.

OK, who threw a shoe at me? Who? Who?

See slides: here.

Related posts:
1. AK attended a forum on CPF.
2. What is our attitude towards having children?