What CPF cut means for Singapore
The Straits Times, Asia News Network, Singapore
Just about every home owner and intending buyer will have worked and reworked the numbers since word came of an imminent Central Provident Fund cut. The newspapers have been full of model permutations to cater to every salary range and age group; assumptions about a higher or lower Medisave amount are also up in the air. As if these are not disconcerting enough, the current $6,000 salary cap for CPF eligibility could be lowered by a thousand dollars or two. This will mean extra take-home pay for middle-income earners in their early 30s, the group most active in the property market.
But that gets largely balanced off if base employment income, as distinct from gross earnings, contracts should companies resort to wage cuts if the hoped-for break in the clouds is late coming. Gross income will have taken a big cut already, as the rationale is to give employers cost relief. If none of the percentage cut accrues to employee contributions, lower income earners will not even have the comfort of a bit more cash in hand. A piffly sum? Think of all those households receiving rent and service-conservancy concessions and still ending up in debt.
The prognosis is not good, despite government assurances of reliefs to go with the cuts. Unless the collective public groaning of the past week induced a late reworking of CPF numbers, the proposals that go before Parliament on Thursday could usher in a whole new way of thinking for Singaporeans who have regarded the CPF fondly as the old faithful in property planning.
In a way, it could be for the better. In his National Day Rally speech, Prime Minister Goh Chok Tong left himself some room to soften the impact with phased changes and to allow for self- adjustment in the contribution rates in step with economic conditions. But Singaporeans need not hold their breath. As the Government is dead set on competitive pricing as being essential for the country to stay viable as a business center, the changes will be drastic.
It is a good idea to start thinking about changes in property investment planning. Singaporeans are still rushing in blind or with eyes half closed. Latest figures from the Urban Redevelopment Authority and the CPF Board for the second quarter show that tight economic conditions did not dampen home buying to the extent expected. CPF withdrawals for purchases rose by 29 percent against the first quarter. Sales of private homes surged in the second quarter and the take-up rate of executive condominiums showed the upgrading instinct, the driving force in property trends, was not much dimmed by job uncertainties. This must change.
Two categories of people are especially susceptible to impulse buying -- young couples no more than five, six years into their working lives and those aged around 45 to 50 who feel they have earned promotion to private condominiums. It never ceases to amaze that more double-income couples not yet 30 think nothing of chaining themselves to career-long term loans to go "private" first time out, instead of starting with Housing Board flats as most sensible people would do. And they wonder why they are immobile when career changes and business opportunities beckon.
It apparently is a matter of status. If social distinction used to be merely a failing, it should be classified henceforth as a disease. Diseases are to be eradicated. Middle-aged upgraders, on the other hand, are burdening themselves with new mortgages at a stage of their lives when they should be husbanding their retirement resources. It would be a value change, no less, if the new CPF regime can impose discipline such that a new thinking evolves.