Buy higher-end houses with new EPF account

EFFECTIVE Aug 1, 2010, members of the Employees Provident Fund (EPF) who have not withdrawn their monies to purchase a house or reduce a housing loan will be able to purchase a house of high value under the "Flexible Housing Withdrawal" scheme.

Contributions to the EPF are regarded as income of the employees to enable them to get approval for a larger loan.

Members can apply to transfer part of their savings in Account 2 and a part of their monthly contributions into a "Flexible Housing Withdrawal" account. The money will be ring-fenced for the purpose of paying off the loan and members cannot use it for other withdrawal purposes. The amount is not assigned to the bank and will still accrue annual dividends.

Robert Foo, principal consultant of MyFP Services Sdn Bhd, says it is fine if contributors want to borrow a little more money to buy a better house but cautions them against spending based on future income. "I still prefer that consumers buy a home based on their current income. There is always the time to upgrade your home later when your income level is higher. If need be, sell off your existing home and use that as part payment for home of higher value."

To use future income as a basis to secure a higher loan amount, he argues, the necessary assumption is that "borrowers will continue to be employed, property prices will continue to rise, and at a rate that makes it beneficial to buy higher-end homes now, and that the residential property market is the best investment, but we know that's not all true."

Foo is not in favour of allowing consumers to borrow based on their many years of earning potential as this creates an unrealistic perception of the long-term residential property market.