A proposal for discussion

[tanjm]

Here's one way to reward Singaporeans, rein in housing prices, increase CPF retirement amounts and still remain reasonably fiscally responsible.

Over a decent period (e.g. 10 years) increase the Special Account contribution rate by a significant amount. This will reduce the amount available for housing payments. Since most people use CPF to pay a significant amount of their mortgages, this will automatically moderate housing prices, including new HDB flats since they are market price pegged.

I think it was an original policy mistake of the government to allow too much of CPF to be used for housing. With people being able to pay much of their housing with CPF money, there is incentive for them to (over)pay for their properties.

It is a basic tenet of economics that prices depend on demand and supply. Just restricting money available to pay for housing will automatically moderate house prices.

At age 55, the government to make a lump sum payment of (say) $5K-$10K to each Singaporean's account. Assuming 80,000 people per year reaching 55, this is about $400-$800 million per year. A reasonable and easily forecastable expediture based on demographic data. $5000 is not very significant for a well off person, but would be a considerable fraction of a lower income person's CPF balances. This amount is not immediately withdrawable and should not result in inflationary pressures.

[koh_52]

Welcome back tanjm san, since 2007 i been reading some of your good postings.

Fully agreed PAP or oldman lee should return some of the country asset back to her citizen....the country money doesn't belongs to the lee's family.

How much is our country reserve now? How much GIC and Tameask had loss in the oversea investment,start from the day ho ching famous losses in Micropolis aro 20 yrs ago....... only 3 of them know....the 3 keys with the lee's family.

If not of the election I sincerely doubt stingy oldman lee willing to give out money to the citizen, he is vote buying to be honest...why dat he is 87 yrs old and yet refused to step down...simple reason, he not willing to let go the huge amount of blood money that he had squeezed from his citizen for the past 52 yrs of dictatorship rule....In short, my take your proposal will be thrown into the drain, unless we have 1/3 opposition in the parliament.

Time for a Change..fellow Singaporean.

[iff]

The CPF balance is nation seceret and should never be released to public,
ok can understand that,
but if people get sick and need to take out "his own savings" to save himself and that's still not allowed, then it's hell lie.

[yeokiwi]

The CPF balance is nation seceret and should never be released to public,
ok can understand that,
but if people get sick and need to take out "his own savings" to save himself and that's still not allowed, then it's hell lie.

CPF balance is not a secret. CPF board releases financial report annually.
http://mycpf.cpf.gov.sg/NR/rdonlyres/020...ncials.pdf

The total amount of members' fund is $166,804,016,000 or $166 billion in 2009.

Back to the suggestion by tanjm, I think the refund amount should be more selective. THere is no point in giving millionaires a 5k refund in their CPF account since it does not really make much of a difference.

ANyway, their headache now is the low interest rate. If ah ben is willing to increase the interest rate, I suppose the properties' prices will stagnant or drop immediately.

[tanjm]

My purpose in writing this thread is to stimulate discussion. Not to rehash insults against anyone.

I find that both opposition and PAP are singularly lacking in imagination and flexibility.

I believe that the PAP government has in the past made a policy error in allowing too much to be withdrawn from CPF for housing. That cannot be easily reversed now. But one possibility is a gradual change in CPF policy.

I think that housing prices are high partly due to people's higher expectations on housing, pressure from an increased population and the policy of allowing too much CPF to be withdrawn from housing, and an general all round increased wealth chasing limited supply of housing. However, I believe the policy of pegging new HDB prices as a subsidy to market price is a correct one - to do so otherwise is a path to resource misallocation with all the attendent effects (e.g. people queueing up for new flats just to get their cut of the housing cherry, empty flats waiting to be sold once past waiting period). Land is a national resource, and to not price it according to market price is short changing people who do not, or cannot buy new HDB flats.

I also think that it is possible to give some of our surpluses back and be "less efficient". But NOT as cash/ready assets to our population - to that extent I agree with the implied PAP stance that "there is no free lunch". We can deal with our aging population at the same time by pumping up their retirement balances. Any expenditure by retirees of their CPF money will go straight back into the economy mostly as services.

To Yeokiwi: a $5K giveaway into CPF balances will in fact favor the poorer more than the richer in percentage terms. All singaporeans are entitled to our surpluses after all. We should not be selective that way (not to mention the difficulty of determining the "richer" singaporeans especially among the self-employed).

[Musicwhiz]

ANyway, their headache now is the low interest rate. If ah ben is willing to increase the interest rate, I suppose the properties' prices will stagnant or drop immediately.

The problem here is also that of the USA - they are so afraid of economic stagnation that they are willing to hold rates artifically low for such a long period of time! And the huge amount of money printing only serves to weaken their own currency and encourage rampant inflation......

[tanjm]

ANyway, their headache now is the low interest rate. If ah ben is willing to increase the interest rate, I suppose the properties' prices will stagnant or drop immediately.

The problem here is also that of the USA - they are so afraid of economic stagnation that they are willing to hold rates artifically low for such a long period of time! And the huge amount of money printing only serves to weaken their own currency and encourage rampant inflation......

Singapore interest rates is pegged to USD via USD libor-SGD cross currency basis swaps. All things being equal, this means that a rise in USD rates will tend to transmit itself to SGD funding for banks that fund themselves offshore.

What this means is that our mortgages and such are indeed tied to USD interest rates. Indeed it is something to watch out for. For a household with a 500K loan, this means an approximately $280 to $330 rise in monthly payments per percentage rise in interest rates.

I think people who take out a loan and congratulate themselves that it is affordable might some time in the future think otherwise.

But back to the original topic. I think we should simply sequestor more CPF funds from being used for housing - that would automatically bring housing prices down and leave more in CPF for retirement at one stroke.

[yeokiwi]

But back to the original topic. I think we should simply sequestor more CPF funds from being used for housing - that would automatically bring housing prices down and leave more in CPF for retirement at one stroke.

They probably know the problem but it will be real hard to change the ratio of contribution. They are doing this discretely when the employers' contribution is increased. However, any changes in the ratio will mean that some families may have to fork out cash to pay for their properties' loans.

Every percentage point being transfer from SA to OA will reduce the OA contribution by a maximum of $45 depending on the monthly income.

Obviously, it will not be a popular policy.

After this election, PAP may not have the courage to do the right but unpopular policies.

[Musicwhiz]

But back to the original topic. I think we should simply sequestor more CPF funds from being used for housing - that would automatically bring housing prices down and leave more in CPF for retirement at one stroke.

It was a bad idea originally to liberalize the CPF OA for use in property financing. This opened the floodgates and caused prices to soar because housing could now be "funded" using CPF and people would not feel the pinch, even though technically CPF is still your own money! If people were only allowed to put downpayments in cash, I am sure the definition of affordability would change and property values may plummet.

Agree that it is difficult to reverse such a policy without having adverse implications.

Then again, what are we paying them millions of dollars to do? Solve problems, of course!

[cif5000]

Over a decent period (e.g. 10 years) increase the Special Account contribution rate by a significant amount. This will reduce the amount available for housing payments.

I think this has already been done although it might not be significant enough. Look at the contribution rates for "35 and below" and you will find that the SA has increased from nothing to 5.5% over a span of 11 years. The amount available in OA is also reduced through the lowering of CPF Ceiling.

CPF Contribution
Total (Employer/Employee) into OA, SA and MA
Jan 1999: 30% (10%/20%) into 24%OA; 0%SA; 6%MA
Apr 2000: 32% (12%/20%) into 24%OA; 2%SA; 6%MA
Jan 2001: 36% (16%/20%) into 26%OA; 4%SA; 6%MA
Oct 2003: 33% (13%/20%) into 22%OA; 5%SA; 6%MA
Jul 2007: 34.5% (14.5%/20%) into 23%OA; 5%SA; 6.5%MA
Mar 2011: 35.5% (15.5%/20%) into 23%OA; 5.5%SA; 7%MA
Source: http://mycpf.cpf.gov.sg/Members/Gen-Info...ntriRa.htm

CPF Ceiling
Apr 2000: $6,000 to $5,500
Jan 2005: $5,500 to $5,000
Jan 2006: $5,000 to $4,500