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.