Pssst. Over here.

Many home owners have profited by HDB's new rental rules. -- Picture: FILE

Can you use some spare cash?

What? You want to know the interest rate?

Don't worry. There is no interest.

Payment terms? There is also no need to repay. That's because it is your money anyway.

Have you guessed?

I am talking about taking money out of your CPF account before age 55.

As you know, this has always been impossible. Until now.

AH BENG NEEDS CASH

I will explain how it is done with the story of Goh Ah Beng.

He is 30 years old and urgently needs $3,500 to repay loan sharks.

But he is not exactly broke.

He and his wife, Ah Soh, own a 4-room flat and also have $5,000 in their CPF ordinary accounts.

Ah Beng goes to the nearest CPF office and asks: 'Can my wife and I please withdraw $3,500 from our CPF accounts? We desperately need the money.'

The CPF lady is sympathetic but tells him the rule: 'You must wait until you are 55 before withdrawing your CPF money.'

Ah Beng is only 30. He can't wait another 25 years. He needs the money now.

Fortunately, there is a way:

Step 1: Each month, Ah Beng pays his $1,200 mortgage from his ordinary account (CPF).

Step 2: Under HDB's new rules, he qualifies to rent out his entire flat.

Step 3: He finds a tenant who pays $1,200 monthly rent into Ah Beng's bank account (cash).

The effect is that $1,200 per month is converted from CPF money into cash. Simple.

Safety Valve: Are the new HDB rental rules a loophole (bad) or a safety valve (good)?

I would say the latter. It offers a way for the truly needy to access their CPF money.

Of course, it requires moving out of one's home, which is not fun or easy.

But that is as it should be. The inconvenience assures that people will not dip into their CPF balances frivolously.

By the way, you don't want the rent expense for your new place to eat into your rental income.

The best is to live with relatives and pay nothing.

That is what most people do. HDB tells me that 58 per cent of people who rent out their flats move in with relatives.

History: Until recently, you had to live abroad to get permission to rent your entire flat.

In March 2005 it got easier. The minimum occupancy was set at 5 years for flat owners without an outstanding HDB loan and 10 years for all others.

In March 2007, the rules were relaxed further by de-linking rental from the home owner's loan status, so it was no longer necessary to pay down the loan in order to rent out the flat.

Now there are two categories:

(i) If you purchased from HDB directly OR from the open market with a CPF housing grant, you can rent your flat after living in it for 5 years.

(ii) If you purchased from the open market (without a CPF housing grant), you can rent your flat after living in it for 3 years.

It is an important change and makes more than three quarters of the 830,000 HDB flats eligible to be rented.

Cash kickbacks

THERE is another way to convert CPF money into cash.

You may have seen newspaper ads like, 'CPF highest returns, up to 7 %' and 'CPF Investment. Best returns, 7 %.'

But when I called, the financial advisers hardly mentioned investments.

What they really sell is a way for you to withdraw cash from your CPF account.

It works like this: Using your CPF money, you buy a unit trust.

The 3 per cent commission is included in the price. Then, the agent returns 0.75 per cent of the commission to you in cash.

They encourage you to buy and sell your unit trust frequently, like every two weeks.

It brings monthly commission and cash to 6 and 1.5 per cent.

If you trade $50,000 of unit trusts, the monthly cash received is $750(.015 x $50,000).

Not bad.

Two problems: First, it is expensive. The annual interest cost comes to 54 per cent (.06 - .015) x 12 months.

Second, it is not permitted by the CPF Board.

In fact, if you turn in the firm that sold you this deal, the CPF Board will require it to deposit into your CPF account an amount equal to the cash kickback that it paid you earlier.

The CPF Board tells me it is not really the Board's intent to offer a bounty on these firms.

But still, the money is good. It could make for a lot of whistle-blowers.

RENTALS FOR HDB FLATS

3-room: $1,200

4-room: $1,400

5-room: $1,600

Executive: $1,700

Source: Housing Development Board  Back to Columnists