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CPF and HDB: 10 Real Dirty Tricks.

housing bubble

Roy Ngerng of  Heart Truths, today published an article to expose the raw deal Singaporeans get from HDB and CPF. He makes many valid points, most of which I have made before on  Unfortunately in his overeagerness to convict the PAP of fraud he makes an elementary error and simply gets it quite wrong. Whilst the error does not invalidate the fundamental point about the raw deal it does allow the PAP IB Brigade to seize on it and draw us away from valid criticisms.

Roy’s fundamental error also distracts from the fact that CPF amounts to a regressive tax on lower-income Singaporeans and that the government uses its control over land to ensure that we overpay for a wasting asset which should belong to us rather than them, once we’ve paid for it.  This is the real dirty trick.

What are Roy’s mistakes?

He makes the point that CPF requires us to pay interest on any withdrawals we make from our accounts both when used to purchase housing and also to service the loans. This is in addition to the normal interest we have to pay on any housing loans that we take out.  So far so correct.

To digress a little: Having to pay interest on our own money is itself unusual. If this were a private savings scheme or pension fund then of course it would be up to us to decide how much money we wished to save. However this is a mandatory scheme. Despite the fiction fed to foreign think tanks that Singapore has a laisser-faire economy this mandatory scheme is in fact a stealth tax on our citizens.

This interest only becomes payable when we sell the HDB unit.  Roy’s error (whether intentional or not) is in saying that this interest is lost to the government.  It is in fact interest that is paid to ourselves and it is not true that we lose it.  The accumulated interest remains in our account and can subsequently be withdrawn for new property purchases though interest will again be payable on the fresh withdrawal unless we have reached an age and have enough in our accounts to withdraw our money without having to pay it back.

It is true though that the government makes it difficult for us to withdraw what should be “our” money. It should be unnecessary if Temasek and GIC are making the returns they claim.That in itself means we should be asking the government why it is so desperate to hang on to our money if its funds are making so much?

It is also difficult to understand why we have to pay interest to ourselves on money we withdraw. From the government’s point of view making us pay back our borrowed CPF contributions is plugging a loophole that Singaporeans could use to withdraw most of their CPF. One way they could do this is by purchasing a property and then immediately selling it. But the government does not have to pay interest on those borrowed contributions so why should we have to pay ourselves back for borrowing our own money?

Another error that Roy makes is to say that it was WP’s Mr Giam who suddenly discovered the hidden scandal of HDB’s 99-year leases. In fact giving HDB leaseholders the freehold of their units was part of the Reform Party manifesto in GE 2011. Before that I believe my late father advocated a similar policy in Parliament.  “The Problem with HDB Part 2” on my blog was concerned with the fact that HDB flats would be worthless when the lease expired. To quote:

“However there has been a fundamental mispricing in the HDB market in which decreasing time to expiry of the lease has not been taken into account.  HDB properties can be taken back by a future government at the expiry of the lease for no compensation. Yet properties with sixty years or less to expiry trade at very similar prices to new flats with ninety-nine year leases in the resale market. This is completely different from how leaseholds on private property are valued in Singapore. This is also completely different to how leaseholds are valued in any other country in my experience.

 The buyers have been sold the fiction that an asset that has to be handed back to the government in at most ninety-nine years, and in many cases much less, will somehow ignore the laws of economics and keep on appreciating forever. Let me repeat that there has been a fundamental mispricing in the HDB market.

 Singaporeans have been told by PAP ministers and in particular LKY over and over again never to sell their HDB properties, as they can only go up in value. No government that I am aware of has made such an explicit promise and it can only be characterized as highly irresponsible.  If a financial investment had been promoted in this way by a broker or corporation without any mention of the risks and investors had subsequently lost money, the buyers would be entitled to compensation.”

 So here are the hard truths (or hard questions) about CPF and HDB which I first wrote about some three years ago.  Some of these hard truths Roy has covered but all of them have been written extensively about before by me (see links below):

dirty tricks

  1.       Why do we still need a compulsory savings scheme if Temasek and GIC are doing as well as they claim?  The PAP claim that Temasek is self-funded yet the government continues to inject assets (like Changi Airport Group) for free into Temasek. Even this capital injection is vastly undervalued allowing Temasek to use the valuation surplus to conceal that the majority of its investments like its panic rescue of Olam do not meet its internal rate of return hurdles.
  2.       Why has the PAP repeatedly broken its promises to allow Singaporeans to withdraw their CPF in full? First we were supposed to be able to withdraw it in full at 55 then this was postponed. Now we have to buy an annuity through CPF Life, which is a bad deal for Singaporeans as the government can alter the payout every year if it has done badly, or if life expectancy changes. In effect Singaporeans have written a free put to GIC. We do not directly share in its returns if it does well but have to bear the losses if the value of its assets falls below that necessary to repay CPF holders.
  3.       CPF is a tax since it pays holders well below what they could earn in the market for investments that were locked in for similar durations and only could be withdrawn under limited circumstances. This tax was significantly higher in the past when global interest rates were higher but still provides a big “endowment effect” which boosts GIC’s returns.
  4.       Furthermore CPF is a regressive tax since it is capped at an income level of $85,000 per annum The top earners in Singapore pay vastly less of their income in CPF than do those on low incomes. Even though they also get less Employer contributions it is likely that much of the Employer contributions are borne by the employees themselves in the form of lower wages.
  5.       CPF is not paid by expat workers and the hypothetical market value of a $ of CPF contributions is significantly less than a $ of disposable income. This gives foreign workers an unfair advantage over Singaporeans and allows them to undercut Singaporeans in the labour market.
  6.       Why is it necessary for there to be a PAP monopoly over the supply of housing? This, combined with mass immigration inflows, results in Singaporeans massively overpaying for 99-year leasehold housing of inferior quality.
  7.       I discussed above the mania that seemed to afflict Singaporeans because of irresponsible promises by LKY and the PAP that HDB was an asset that would constantly go up in value. I pointed out that the SERS scheme, in which Singaporean swap their old flats for new smaller ones with a fresh lease in much higher-density estates had encouraged this illusion. To quote again from my previous article, “The problem is that there is a fundamental conflict of interest between the government’s roles as provider of supposedly low-cost housing for the masses and as monopoly owner of at least 80% of the land in Singapore. This is why the PAP government has had a vested interest in pumping air into the housing bubble.  Until now they have been happy to maintain the fiction that the length of the leasehold does not affect HDB valuations. This is because with the deliberate creation of huge excess demand for housing the HDB finds it profitable to acquire existing HDB blocks from their owners and pay them compensation which is close to the price of new BTO flats. That is because they can vastly increase the density of housing on that area by doubling or tripling the size of blocks and building them closer together.”
  8.       However, as I explained above and Khaw Boon Wan admitted in his Parliamentary answer to Mr Giam’s question, the viability of the SERS scheme depends upon the redevelopment potential of the site. In other words, as long as redevelopment continues to be profitable for HDB which in turn is dependent upon other factors like continued population inflows and high economic growth rates.
  9.       KBW stated for the record that if SERS does not make economic sense then the government will allow the leases to expire meaning that HDB owners will get nothing. At some point (certainly when the majority of estates have less than fifty years to run but probably much earlier) the factors that have inflated the HDB bubble will go into reverse. Singaporeans can expect a big fall in HDB prices particularly for older estates where the lease has fewer years to run.  This is a ticking time bomb which could have serious adverse consequences for all Singaporeans leaving the majority who are financially naïve or too trusting of the PAP government with negative equity.
  10. We do not need to make unsubstantiated accusations of fraud , as Roy does, to demonstrate that Singaporeans are getting a bad deal from allowing the PAP to have control over housing and our savings.   Owning the freehold of our properties and the freedom to decide how to save are essential elements in creating a property-owning democracy.  A property owning class is the basis for a strong middle class and the government ownership of land and housing is the single biggest obstacle to the creation of a strong middle in Singapore.  That is why you see such a disparity between the 10% of plutocrats at the top and the 87% of the rest who have the pleasure of the government as their landlord. With a strong middle HDB housing could return to its original function as social housing for the truly needy and provide a valauble safety net.

Sadly every article I write seems to end the same way. So here I go again! Until we start standing up for our rights we will continue to get the kind of raw deal that citizens of any democratic country would see through and not tolerate.



  1. Dear Kenneth,

    While doing some research on an unrelated matter for one of my books, I stumbled upon your blog which I didn’t even know existed.

    I ran into your father several times and had the privilege and opportunity to shake his hand. The man was a true patriot!

    I’m not an economist but much of what you’ve put up on this subject matter here, makes a whole lot of sense. I never quite thought about it in such a comprehensive light. It is wrong that we citizens are put under such uncalled for stress and monetary hardship due to brilliant minds which conceived these “strategies of control” in the first place.

    The concept of “money” and how it was used both in history and in our current times to “enslave” the common man is powerfully, yet simply, highlighted by Mr. Michael Tellinger in this interview with Anthony Migchels in his YouTube video:

    Mr. Michael Tellinger is a South African and the founder of the UBUNTU Party in 2012 and contested unsuccessfully in the recent elections on 07/05/2014; something similar to many opposition parties here, in Singapore. His thoughts and explanations may seem farfetched, inconceivable or even unattainable but to even think and fight for his beliefs, is both praiseworthy and accomplishment itself.


  2. I don’t think you can call CPF a tax.. It was a savings plan when it started, and with all the goalpost shifting, it has become more like a way to control the Singaporean and PR workforce. If it is a pension system, it should be stated so, but it’s NOT like the European or American system where previous generation pays for the next, and you just trust the government will pay you when you are old. Hence, I believe as a savings plan it should be providing enough for retiring citizens with all the surplus in its accounts diverted to free university for young, free healthcare up to certain age, additional support for property ownership etc.. If the government has the benefit of ‘pooling’ together such a large fund, it should transfer the benefits to us, instead of behaving like a profiteering insurance company.

    This is also why I don’t think we can also compare Singapore or its politicians to a business, as many believe. It just confuses profit with public interest further.


  3. @ Amy Lauschke: not true. I am 62 years old and I have a large amount of accrued interest still showing as “owed” by me to my (own) CPF account. Note that my property is fully paid for and I am past retirement age. (Perhaps you turned 55 before the rules were changed; this government is famous for shifting goalposts).

    I accept that the interest amount can be utilised by me to purchase another property if I sell my existing property. In that case, however, note that I can use only 50% of the minimum sum applicable to the year I turned 55 to pay for the new property. I find this highly objectionable, that as someone past retirement age I am not able to use all the money in my CPF account to finance another property.

    I also find it objectionable, as many others do, that I have no control over a significant amount of funds in my CPF account and shall have no control over them for the foreseeable future. If I do not live for the length of time on which CPF Life projections are based (“average or expected lifespans”) I shall not be able to enjoy the money I have earned, even if I happen to need it urgently at some point in time.

    The final ignominy is that behind the guise of “providing for Singaporeans in their retirement” and “taking care of their medical needs” this government does not spend a cent from its own pocket (ie from the public pocket: as has been pointed out by many observers, government surpluses belong to the public and some of it should to be used to provide retirement and health benefits, amongst others). In this the PAP is true to its extreme right-wing character. The CPF scheme in Singapore is truly a tax on citizens in that it is compulsory and continuing. As Ben Franklin said “…. in this world nothing can be said to be certain, except death and taxes”.


  4. The reason the government is making it more and more difficult for us to withdraw our CPF in the form of the minimum sum is very simple. The CPF was originally conceived as a personal savings plan, rather like an insurance endowment policy or a time savings account in a bank, where you can withdraw the principal and interest at maturity.

    The CPF is being changed to a pension plan, without the consent of the members or debate in Parliament. It is a political decision made by the PAP and needless to say, without an effective opposition they had their way.


  5. Dear Jeyeratnam,
    It is very difficult for any government to look after its retired citizens totally without some co payments. Let alone a country like Singapore without any natural resources. You are a qualified economist, you should know better where finally any money must come from. If using our saved resources like Temasek or GIC, you will bankrupt the country no matter how well it can make money. And very clearly, GIC cannot take risk resulting in returns which is minimal. Temasek do take some risks but still it still unable to generate double digit returns. You stated you have managed hedge funds, what is your average returns over the years. Don’t take for granted that Singapore will always do well, we need to save for a rainy day. And please we cannot end up like some European countries asking for financial rescue. Politically I understand you wanted the Government to give, that being the best way to score votes! The PAP could have done that but that is very irresponsible because down the road, the future generations will suffer. As an ordinary Singaporean living an ordinary life and average jobs, I have accumulated enough CPF and personal savings to retire at 63. Owned a HDB flat and taking things easy. Of course, I must look after my spending since with CPF retirement payment and some investment returns, it is much less than when working. But still I am enjoying my retirement. Of course I know a minority of citizens of my age are not doing well but no country in this world can take care of all. Important is help be given to this group of people but not to the extent that they can enjoy life like going holidays on Government account. Mr Jeyeratnam, consider yourself lucky as you enjoy a good overseas education which people like us never have the chance because we were born poor. Result you enjoy a standard of living higher than most of us. But this is society and that is how it operates. Somebody must do the lowly paid jobs like cleaners, labourers etc while some do higher level jobs including doctors, economist like you, managers etc. You can’t pay all the same. The more you pay the lower rung, the more those in the upper class will ask. So there will always be inequality in this world. I am sure you will not share your wealth with those who may not have. As an opposition politician, you can only ask the Government to open its coffers. Perhaps that is how one can buy votes.
    While I may not support the PAP in all it’s policies, the fact is Singapore is what is today reflects on its right policies. Just look around our neighbors, near and far, haven’t they practice the democracy which you look forward to for Singapore? Did they do better?


    • Hi, from what I understand Mr J.B. Jeyaratnam was sued for defamation and was declared a bankrupt, it is likely that Mr Kenneth sponsored his own education. About every society has to have people doing lowly paid jobs, do you know that in Australia cleaners are paid $20 AUS/hr. In Singapore, our govt policy has suppressed.wages for this group of people.


  6. Kenneth, I think the accrued interest on amounts that we withdraw from our CPF accounts is an exercise in quantifying the first charge that CPF Board as a trustee for our retirement funds would have against our property. I personally have no issue with the interest accrued because ultimately, in the case of a sale of the property, the proceeds would be returned back to our own CPF accounts, and ready for use again.
    I think Roy’s narration of this accrued interest going on to 40 years/50 years (after Chart 21) is wrong. My personal experience: after I reached 55, this particular sub -account of CPF funds plus accrued interest used for my property disappeared and the first charge favouring the CPF Board was discharged simultaneously. In other words, there is NO more accruals.


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