Monday, 8 June 2009

Man-in-the-street Paying Back Temasek Losses?

I called my friend when news broke that civil servants will not be receiving their mid-year bonus and asked him how he was coping. He replied half-jokingly that it was to be expected because the government had to recoup their investment losses somehow. I found that to be an interesting take on things and laughed together with him (me laughing harder of course as he was the one who suffered the real monetary loss).

Shortly thereafter, I learnt about the Medisave Minimum Sum increase which registers the largest jump of $11,000 from the previous year as compared to a relatively modest $4,500 to $6,500 year-on-year increase in each of the preceding 5 years. Was inflation really THAT exceptionally bad in 2008/2009 as compared to 2007/2008?

source: CPF Board

Then today, I learnt that house owners now have to top-up any shortfall into their CPF accounts should they sell their flats below valuation. In a nutshell, what this means is that if you had bought your flat in 1999 for say $300,000 using money from your CPF account, you would technically 'owe' $300,000 + 2.5% CPF Ordinary account interest x 10 years. That works out to $375,000 that needs to be returned to your account (assuming you bought your flat WITHOUT taking any loans). You would therefore need to sell your flat for above $375,000 before you can even think about 'earning' a profit from the sale.

Consequently, if you sell your flat for anything less than this value, you can't even dream of seeing anything in cash - everything goes into the CPF account. Apparently, when you sell below the valuation (valuers are HDB appointed and IRAS licensed, by the way), you are obligated to top-up the difference between sale price and valuation back into your CPF account as well. This was reportedly 'enforced loosely' - until now.

When sale prices are naturally heading southward and people in difficulty are finding themselves forced to sell their flats cheaply to save themselves, it is a mystery to me why the authorities would put such folks in a catch-22 situation - if they keep the flat, they wouldn't be able to service the loans; and they can't sell their flat either because they would be obligated to come up with cash to make up the difference (which they obviously don't have).

Any which way I look at this, it seems as though only the CPF/HDB coffers will benefit - if the top-up is made, the actual financial loss of the sale is borne by the house owner (who forks it all out in cash), and if there is a default in the housing loan repayment, HDB can simply repossess the flat and resell it for a (handsome) profit.

So, that brings me to ask the question, "who stands to benefit the most" and the answer seems to be an obvious CPF/HDB/Civil Service which invariably leads back to the same coffers (more or less) - Ministry of Finance, which in turn finances Temasek Holdings.

In any case, it sure doesn't look as though the man in the street is in anyway a better position to deal with the current difficult financial situation - in fact, it just got worse.


Anonymous said...

of course, the man in the street need not know about this cos ST is not analysing it like you.

Ahhh - no wonder they are ranked 140+

Anonymous said...

Its most depressing.

We are just dished out the news and expected to accept it, keep quiet, ask no questions, and bow in reverent worship of the Powers, not unlike receiving a mandate from Heaven.

ST is doing an utter disservice to the people. At the least it can be honest, and call itself the Prostitute Press or something to that effect, for then people are compel to think and discern the true reality for themselves.

How can Singaporeans think when we are under compulsion not to think?

The Sketch Times said...

And you know what, no talk about ministers' pay cuts despite the doom and gloom talk about everyone tightening our belts.

Anonymous said...

We may find that one day, when we die, our cpf $ can only go to our nominees cpf a/c and not pay out in cash to them...

Singapore Democrats said...

Thank you for the insightful blogpost. The Singapore Democrats have featured your post in our blogs of the week section –

More about our “Blogs of the week” section –

Ganga said...

Thank you all for your comments and compliments. I am honoured to have been featured at Singapore Daily and Singapore Democrats with regard to this article.