Cashing out Your CPF Before Retirement Using Real Estate as a Vehicle

[Full Disclosure: I’m a licensed real estate salesperson with PropNex. Updating and maintaining this blog helps me condenese and express my thoughs about the real estate scene in Singapore. Hope you enjoy the read! Feel free to ask me any question here, or drop me a DM on Facebook.]

Before we continue, this article is worth a read if you:

1. Are a rental yield seeker
2. Believe in fully utilising CPF funds before retirement
3. Want to gather more information and facts before purchasing real estate or shifting your existing real estate portfolio

The bottom line is this — almost all working Singaporean adults have a substantial amount of CPF and monthly contributions. In most cases, these CPF savings can very well be the equivalent, or more, of your cash savings. This might leave you wondering…

…How Can I Utilise This Money Better?

Wouldn’t it be better to cash out your CPF before retirement age using real estate?
Why not just use your CPF to fund your monthly mortgage and rent it out? This way, you can receive the rental money back each month! Perfect, right? Besides, what good is the CPF money doing inside the CPF account? You won’t get the money back until you’re 55 anyway — considering the ever-increasing minimum sum requirement.

At this stage, wouldn’t it be better to just cash it out?

The money can be put into better use, you’ll have more cash flow, it could lead to a better lifestyle, or you’ll have more investment options.

BUT…Before making such a drastic move, consider the following.

First, You Can Reap Government Rewards

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The Government pays you an accrued interest of 2.5% a year for keeping your CPF in your Ordinary Account. On the flip side, you’ll only have to repay the accrued 2.5% interest into your CPF account once you sell the property — so why not just hold onto the property? Problem solved!

Since the only thing you need to do to avoid the CPF accrued interest is hold onto your Freehold property until it’s paid off, it might seem like all your problems are solved. What’s more, you can collect “free cash” with monthly rentals while your CPF covers the mortgage.

At this stage, cashing out your CPF before 55 seems like a brilliant idea, right?

Before Making Your Decision, Consider the Three Limitations

1. Limiting Options

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You’ll probably miss out on purchasing the right estate if you hold onto your Freehold property, drain your CPF via the mortgage structure, and collect rental in cash without the intention of selling.

Think about it this way. Freehold properties are generally more expensive than their leasehold counterparts. This means that holding onto your Freehold property as a long-term investment puts you at a disadvantage, considering that you might have missed out on exploring the possibilities of purchasing a 99-year property. At the end of the day, holding onto your Freehold property could leave you with minimal profits, considering bank interest deductions and maintenance fees.

Furthermore, the time in which you invest in the development is another concern to consider. Regardless of howfantastic the specific property is at the time, buying at the wrong stage can potentially wipe out your entire savings!

So, before making your move, it’s crucial to ensure your timing is perfect for the equation to work in your favour.

The point is, most developments have probably seen their bull run in the first ten years of its existence — provided it’s the right property, of course. Usually, during the early stages, people are hyped up and the demand from emotional buyers starts peaking — especially if it’s for their own stay. These are probably the properties you’ll consider buying because they’ll be ready for immediate rental collection.

Buying a property from the first owner will mean one of two things:

1. You are helping the first owner make profits, OR…
2. It’s not a desirable property and they want to sell ASAP

Truth be told, these are the #1 reasons why investors want to sell their property.

2. Cost of Freehold VS Lease Decay

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The term “Freehold” is often cause for confusion when it comes to owning a property. Most people are under the impression that a 99-year property goes through lease decay because it’s harder to sell as the lease shortens, right…?

…Wrong! Without a doubt, this is a common phenomenon that happens with a 99-year property if it has very little lease remaining.


It might not be a bad situation depending on the timing of your purchase. You’re lucky if you are the first owner selling to the second seller — again, provided you’ve bought the right property. In this case, the probability of making a capital appreciation is much higher.

Because owners have an urge to sell the property before the remaining lease gets smaller, it automatically translates into a higher transaction volume compared to a Freehold property.

High transaction volume is a good gauge of healthy demand when it comes to real estate. This serves as a price benchmark for potential buyers because the transactions are always current — this compared to a property with low transaction volume.

This issue may occur when a potential buyer seeks a price benchmark and the only transaction to date was a few months prior. The result? It reflects low demand and the buyer doesn’t have the assurance that the property is easily sellable in the foreseeable future.

There are a few reasons why this phenomenon is extremely common — especially with older Freehold properties:

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1. Maintenance costs increase as the property ages

2. Wear and tear and the development starts surfacing

3. The rental and sale demand decreases as tenants and buyers tend to flock towards newer developments.

Clearly, it is crucial to understand the downsides of Freehold properties. Like 99-year properties, they too experience lease decay in intangible ways that might be unknown to most people.

3. The Ultimate CPF Cash-Out

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Assuming you’re 55, you’ve set aside the minimum sum, you’ve collected the 30 years’ worth of rent in cash, and the property is fully paid off with your CPF money, you can finally withdraw your CPF in cash.

What’s next?

Hold up! You’re forgetting that you won’t be getting your CPF cashback unless you sell your property! Why? Because the property is fully paid in CPF.

So, what happens now? Depending on the amount of CPF you have locked, the value of the property is how much you’ll get back.

What did I miss?

At this point, you’re holding onto a Freehold property you bought 30 years ago, but you can’t unlock the lump sum of the CPF that went into the property. What’s more, you’ve probably also missed out on the chance to buy the right property for capital appreciation because the short-term goal has always been to cash out your CPF before retirement using real estate and collecting rental.

The whole point of buying the right property is to understand what is behind every possible door before making a drastic move. At the end of the day, the cost of owning a property can amount to hundreds, if not thousands, of dollars. That’s why buying a low demand property without adequate holding power can potentially put you in a situation where you’ll face difficulties selling when you need to.

Here’s a Tip!

Buy the property that you’ll eventually want to live in before the age of 35. This way, you’ll enjoy the maximum loan tenure. Before 35, you can reap the benefits of a capital appreciation on your property investment.

If you’d like to find out more about cashing in on your CPF and investing in property, feel free to contact me and we’ll have a non-obligatory consultation on your current situation and all the risks involved.