Thumbs up for higher interest rates

Thumbs up for higher interest rates
Hike will add up to hefty amount of extra savings over work life
By Lynn Lee
TECHNICAL officer Subhas B. spoke for many polled yesterday when he welcomed the proposed 1 percentage point increase in Central Provident Fund (CPF) interest rates.
‘It means my CPF money will grow bigger as I keep working,’ said the 42-year-old.

Beyond keeping the money for retirement, he plans to use part of his CPF savings to fund his three children’s tertiary education.

For young Singaporeans like equity analyst Geraldine Seah, 26, the increase means she will have more in her CPF Ordinary Account (OA) when the time comes for her to buy a home.

The duo’s cheery response to the higher CPF interest rates announced by Prime Minister Lee Hsien Loong on Sunday, was typical among the 20 people polled yesterday. Almost all hailed the change.

The rates will rise from 2.5 per cent to 3.5 per cent for OA balances, and from 4 to 5 per cent for Special, Medisave and Retirement Account balances.

However, these higher rates will be given for only up to $60,000 of a CPF member’s combined balances.

Still, more than half the population of active CPF members will benefit, said PM Lee at the National Day Rally.

He later noted that half of those who are still working have $45,000 or less in their CPF accounts.

What they stand to gain is not small beer.

A 21-year-old earning $1,700 a month, for example, can expect to get $20,000 more in interest when he reaches age 55, even after using CPF savings to buy a four-room flat over the course of his work life.

It is a prospect that pleases childcare teacher Siti Zaheerah Mohd Zaaba, 23, who earns below $1,500 a month.

‘I would like to buy a flat when I get married, so it’s helpful to have more money in my CPF. Also, I don’t know much about investing so I’d rather leave the money in there and let it earn interest.’

Financial planner Mahendran Janarthan said older people can also gain from the new rates by shifting spare funds from their OA to their Special Account to get a risk-free 5 per cent rate of interest.

The Government’s move to pay more interest is in response to longstanding calls for better CPF returns.

It will cost the Government about $700 million a year, and is aimed at helping lower- and middle-income Singaporeans to build a bigger retirement nest-egg.

Mr Lee said the change must receive President S R Nathan’s stamp of approval. ‘[It] must be properly justified and must pass muster and inspection by the Elected President, which is the way we have done it. And we’ve briefed the President.’

As part of the change, CPF members will not be able to invest their first $60,000 in stocks, unit trusts and other investments under the CPF Investment Scheme.

This left civil servant Benedict Luo, 26, slightly miffed.

‘The Government should give people the flexibility of deciding whether they want to play it safe or take some risks. I’m confident I can earn more than 3.5 per cent by investing on my own.’

However, the president of the Society of Financial Service Professionals, Mr Leong Sze Hian, advises the lower-income to be more circumspect. He warned against committing too much in property, once thought to offer sure-fire better returns.

‘The right strategy for the lower-income group is to buy a three-room flat. Don’t upgrade; let the rest of your money stay in your account and earn interest.’

By doing so, they can gain from a new scheme that lets specified elderly home owners monetise their HDB homes. The Government will shorten the lease on their homes to 30 years and pay them cash for the lease value foregone.

Source :  Straits Times - 21 Aug 2007

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‘Modest’ payouts but low-income flat owners will benefit

‘Modest’ payouts but low-income flat owners will benefit
Experts: Scheme a big help to elderly with little or no retirement income
By Tan Hui Yee, Housing Correspondent
VARIOUS OPTIONS: The buyback plan is the latest in recent years to help retirees use their home to fund their living expenses. Currently, they can sublet their flat, buy an elderly-friendly short-lease apartment or take up a reverse mortgage. — ST FILE PHOTO

PAYOUTS from a new plan to help Housing Board owners fund their retirement are likely to be modest but could still make a big difference to lower-income groups.
That was the initial assessment of financial experts of the Government’s plan announced on Sunday to buy back partial leases from some elderly HDB flat owners.

The big advantage is that they get to stay in their memory-filled homes rather than having to move somewhere new.

Financial experts say one reason the payouts are set to be modest is that only owners of smaller homes - two or three-room flats - qualify for the scheme.

And most of these 200,000 or so flats across Singapore were built 20 to 30 years ago so they have a relatively low value, they say.

The plan involves the HDB shortening a flat’s lease to a remaining 30 years, once a flat owner is 62 or older.

Then the HDB pays a lump sum followed by monthly instalments for the rest of the owner’s life.

Further details on how the scheme will work will be released later.

A typical HDB flat lease is 99 years. If a flat owner bought his home at the age of say 33, such a flat would have 70 years of lease left by the time he turned 62.

That means that by shortening the remaining lease to 30 years, the Government would look at buying the other 40 years in this example.

The details are far from clear yet but the former chief of NTUC Income, Mr Tan Kin Lian, estimated that a three-room flat with 70 years lease remaining, and worth $160,000 on the resale market, would probably net its owner about one-third of that resale value - or about $50,000 - under the scheme.

The plan, announced by Prime Minister Lee Hsien Loong, is the latest in recent years to help retirees use their home to fund their living expenses. Currently, they can sublet their flat, buy an elderly-friendly short-lease apartment or take up a reverse mortgage on their HDB flat.

The last option, which involves pledging their property for a regular stream of income, was introduced by insurer NTUC Income last year but was not well received.

By last September, only 10 HDB flat owners had taken it up. The insurer could not provide current take-up figures at presstime.

The HDB buyback plan is somewhat similar to a reverse mortgage but appears to be aimed at lower-income groups. Home owners must be at least 62, with a two- or three-room unit and have had only one housing subsidy, in order to qualify.

The head of the mortgage division at financial advisory firm New Independent, Mr Geoffrey Ying, said a typical three-room flat owner could be looking at payouts of under $400 a month under the buyback scheme, if reverse mortgage payments are any indication.

But he added: ‘If you are talking about people whose retirement income is low or non-existent, it makes a big difference to them. Every little bit helps.’

Like him, the president of the Society of Financial Service Professionals, Mr Leong Sze Hian, felt the plan should be seen as more of a fall-back option for those without sufficient retirement savings.

For retired nurse Maisie Tan, 90, who lives alone in a one-room flat, every extra option is a good thing. She said: ‘Although I am not struggling financially, I know people who are much more worried about their situation. They could probably benefit from this.’

Source :  Straits Times - 21 Aug 2007

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Govt agency buys island - in cyberspace

Govt agency buys island - in cyberspace
By Tham Yuen-C & Chua Hian Hou
AN IT-SAVVY government agency here owns an island - but one which does not exist in the real world.
Along with at least two other agencies, the Infocomm Development Authority (IDA) has bought real estate to operate in a universe that exists only online.

This virtual world, called Second Life, is visited by more than 8.9 million residents from about 100 real-world countries.

Besides the IDA, the Singapore Tourism Board and Economic Development Board have bought stakes there - not for commercial gain, but to reach their audiences, or to explore operations in a virtual world.

Senior Minister of State for Information, Communications and the Arts Balaji Sadasivan, revealing this yesterday, noted that life in this digital age was making the world increasingly porous, so it was important for people to ‘exploit the opportunities opening up’ in the cyberworld.

Dr Balaji, who is also the Senior Minister of State for Foreign Affairs, was speaking at the opening of a gathering of 220 lawyers, social scientists, entrepreneurs and technologists from 20 countries.

The State of Play V Conference is a platform for them to discuss the impact of virtual worlds on, for example, real-world laws and regulation.

In Second Life, more than US$1 million (S$1.53 million) in virtual transactions happen daily.

It has attracted companies, organisations and yes, agencies from other real-world governments interested in reaching out to the audience that spends several hours in cyberspace.

Assistant Professor Aaron Delwiche from Trinity University’s department of communication, who is also the co-chair of the conference, noted that people were forming impressions of other cultures based on these digital encounters.

He said: ‘Today, virtual worlds are viewed as playgrounds, but tomorrow, they will supplement our physical workplaces.’

The three Singapore government agencies yesterday declined to elaborate on their cyberspace forays.

But The Straits Times understands that on the ‘island’ the IDA bought, the agency is working with students of Nanyang Polytechnic to design software applications that could be used in the virtual world.

For example, they have created a live video conferencing programme for Second Life residents to stream live meetings and conferences.

Speaking at the conference yesterday, Principal Senior State Counsel Charles Lim of the Attorney-General’s Chambers said Singapore was in favour of leaving virtual worlds alone, as long as the activities there did not damage the ‘fabric of society’ by, for instance, using online characters to incite religious hatred.

Another speaker, Temple Law School professor David Post, suggested that governments might want to leave virtual worlds to set their own laws.
Source :  Straits Times - 21 Aug 2007

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CPF changes: Age a big question for many

CPF changes: Age a big question for many
Many polled worried if they can live long enough to get savings, but know move is to address ageing
By Peh Shing Huei & Keith Lin
NO CHOICE: Mr Leong lives with a flatmate in a sparse one-room flat in Redhill and even though he does not want public assistance, he says he may not have a choice. — ST PHOTO: SHAHRIYA YAHAYA

ME, LIVE past 80?
That was the big question that gripped Singaporeans yesterday as they reacted to news that it would take a few more years before they can reach into their retirement savings in their Central Provident Fund (CPF) accounts.

They also wondered: Will I ever get to enjoy all of my hard-earned savings?

Mrs G. Dev reflected the views of the vast majority of the 50 people polled by The Straits Times yesterday.

‘If I was in the pink of health and could carry on working till 65, it might be okay,’ said the 50-year-old senior midwife.

‘But I’m already having some health problems, so what if I get too sick to work? It means I will have no money to fall back on.
THIRTY years ago, Mr Leong Wing Wong, 85, collected his CPF savings on retirement - ’several thousand dollars only’ - and put them in the bank.
… more
‘Also, I have no idea how long I will live…With this delay, I might not even live to see the money.’

The cause of her concern was Sunday’s announcement by Prime Minister Lee Hsien Loong that the draw-down age for the CPF Minimum Sum will be postponed from 62 to 63 in 2012.

It will then be gradually raised to 65 by 2018, he said at the National Day Rally.

The majority’s reaction echoes the findings of a recent Straits Times Insight survey in which four out of five people polled were opposed to the raising of the draw-down age for the Minimum Sum.

The Minimum Sum is the amount people must keep in their retirement accounts after withdrawing their CPF at age 55. The current minimum sum required is $99,600. Before the change announced on Sunday, people get a monthly payout from the minimum sum at age 62.

Although unhappy, many of the 50 polled said they understand that the Government has to raise the draw-down age because of a rapidly ageing society.

Average life expectancy has gone up from 61 when the CPF scheme was introduced in 1955 to the current 80.

That means many Singaporeans will have exhausted all of their minimum sum amount at the end of its 20-year pay out period.

Said business consultant Wong Kai Hong, 53: ‘I’m not very happy, but we have to face reality. I still feel very young…Look on the positive side. You stand a better chance of living beyond 80 now.’

Yet, the raw insecurities of one’s mortality often dominates.

Said retired secretary K. S. Yeo, 56: ‘The Government needs to consider premature death. What about people who die before that age. You hear about a lot of people getting cancer these days.’

Other unhappiness stems from mistrust of the Government’s intentions behind the change, as well as anger over what they see as the authorities’ overly paternalistic bent.

‘It’s my money. Whether I choose to not take it out or to take it out and put it under my mattress should be up to me,’ said 45-year-old realtor Veron Chew.

CPF members are entitled to withdraw their CPF savings when they reach 55, after they leave aside the Minimum Sum.

Jalan Besar GRC Member of Parliament Denise Phua urged Singaporeans to think long term, saying: ‘The increase of the draw-down age might be a bitter pill to swallow but will do good for the long-term health of senior citizens, in terms of sustaining their retirement needs.’

But more than frustration, there was also confusion. Most still could not fathom many of the ins and outs of the CPF scheme.

Said despatch supervisor Abdul Razak Bakar, 54: ‘The changes to the CPF are happening too fast, I can’t keep track of all that is going on.’

Mr Edmund Lim, 34, a teaching fellow at the National Institute of Education, believes it is important to educate Singaporeans on how to invest wisely.

‘This will do more to help improve the CPF savings than raising the draw-down age and increasing the returns by 1 percentage point. Education, in this context, may be more effective in the long term than legislation,’ he said.

Source :  Straits Times - 21 Aug 2007

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DC rates seen DC rates seen rising by up to 60%

DC rates seen rising by up to 60%
Sept 1 adjustment will be on top of the recent 40% increase across the board
By KALPANA RASHIWALA
AVERAGE development charge (DC) rates could go up 18-60 per cent for non-landed residential use, 10-25 per cent for commercial use and 10-40 per cent for hotel use come Sept 1, property consultants said.

Ms Tay: DC rates may not lead to a slower collective sales market
The forecast increases - due to rising land values - would be on top of last month’s effective 40 per cent across-the-board increase in DC rates under a change in the formula for calculating them.

According to Jones Lang LaSalle regional director and head of investments Lui Seng Fatt: ‘The Chief Valuer is most unlikely to let the earlier 40 per cent hike, which was more a policy realignment by the state to get a larger share of the appreciation in land value, influence his decision on the quantums of revision for the Sept 1 DC table, since the rates are meant to reflect the market conditions.’

Agreeing, Colliers International director for research and consultancy Tay Huey Ying said: ‘We expect the government to maintain the aggressiveness in the upward adjustment of DC rates as seen in the last (March 1) revision. It is unlikely to be deterred by the resulting large hike in DC rates that this dual exercise will cause.’

A surprise change in the DC formula on July 18 creams off 70 per cent of the enhancement in land value arising from higher use or plot ratio, up from 50 per cent. But while this effectively raised DC rates 40 per cent across the board, the July review was based on land values in the March 1 DC table.

In other words, the July 18 move was independent of the regular six-monthly DC rates reviews on March 1 and Sept 1 each year, which are based on market value.

DC, which may be payable when a site’s use is enhanced or when it is built on more intensively, is specified according to use - such as non-landed residential, landed residential, commercial and hotel, and listed by 118 geographical sectors or locations across Singapore.

With recent transacted land values significantly above imputed values based on current DC rates for many locations and use groups, there is room for the Chief Valuer to impose steep increases in the Sept 1 revision, market watchers reckon.

They say some developers have been waiting for this before they finalise decisions on acquiring collective sale sites that have a significant DC component.

But according to CB Richard Ellis executive director Li Hiaw Ho: ‘Even without any revision in the DC rates, developers are likely to take a step back from acquiring sites through collective sales because of the high prices set by owners.

‘In addition, the possibility of losing deals because of strong opposition by minority owners is a dampener for developers. Therefore, the rate of collective sales may slow in the coming months.’

Citing other factors, Colliers’s Ms Tay said: ‘Developers are taking a cautious stance not only due to the impending DC rate revision but also because of the volatility of the stock market and possible credit tightening.’

According to her, higher DC rates by themselves would not necessarily lead to a slower collective sales market or put a stop to land price escalation. Rather, this depends more on whether developers are confident they can pass on higher costs to buyers, she said.

Jones Lang LaSalle expects DC rates for non-landed residential use to escalate 45-60 per cent islandwide on the back of collective sale transactions. Mr Lui predicts a 45-50 per cent rise in DC rates for District 9 locations, where deals such as The Ardmore and Char Yong Gardens have been done at 80 per cent and 92 per cent above land values implied by the current July 2007 DC rates.

The East Coast and Telok Blangah areas are likely to see higher non-landed residential DC rates to the tune of about 35-45 per cent and 25-30 per cent respectively, Mr Lui said.

Colliers’s Ms Tay expects the average non-landed residential DC rate to rise 18-25 per cent but reckons bigger jumps of 40-50 per cent are likely in Sinaran Drive, Telok Blangah, Bedok/St Patrick’s Road and Upper Paya Lebar/Geylang.

This is because transactions in these fringe areas since March have been done at prices that were 143-195 per cent above the land values implied by the current July 2007 DC rates.

As for landed residential use, JLL expects an average islandwide increase of 20-30 per cent, with the East Coast posting about 25-30 per cent, District 11 about 40-50 per cent and Sentosa some 20-30 per cent.

For commercial use, JLL expects DC rates to go up 20-25 per cent islandwide, while Colliers predicts the increase will average 10-15 per cent.

‘We expect DC rates for the Collyer Quay/Marina Bay locations to see the biggest adjustments to the tune of 40 to 50 per cent,’ said Ms Tay. ‘This is because the $1,540 psf per plot ratio transacted price achieved for the 60-year leasehold Collyer Quay commercial site in October 2006, in the previous review period, still reflects a 220 per cent premium on the land value inferred from the current DC rate for commercial use in this location.’

CBRE’s Mr Li expects the biggest jump in commercial use DC rates - about 40 per cent or more - to be for the Shenton Way and Tanjong Pagar micro-markets, where sites and many buildings were transacted in the past two quarters.

‘The recent award of Tampines P15 site at the Tampines Regional Centre for $622 per square foot per plot ratio in May could also result in an upward revision of the commercial DC rate for this location,’ he said. ‘The implied land value based on the DC rate for this sector is about $334 psf ppr.’

Colliers expects DC rates for industrial use to remain unchanged for all locations as there has been no clear increase in land prices, while DC rates for hotel use could rise 10-15 per cent on average.

JLL forecasts hotel DC rates will rise by an average of 35-40 per cent, given the recent sale of two hotel sites by the state in Tanjong Pagar at prices exceeding their DC rate-implied land values by about 80 per cent.

CBRE’s Mr Li said that a rise in hotel DC rates come Sept 1 can be expected because the booming tourism market has boosted interest in hotel investment.

Source :  Business Times - 21 Aug 2007

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