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Singapore home ownership is well segmented into private homeowners and public homeowners. The public homeownership sector is the dominant sector accommodating 81.3% of total households from low income to upper middle-income groups. Public housing comes under the purview of the Housing Development Board (HDB), a statutory board responsible for housing production, management, finance and formulation of housing policies.

The public homeownership sector is divided into three sub-sectors: the public new housing sector, the HDB resale market and the HDB executive condominium market. In the new housing market, the dwellings are newly built and are sold at subsidized prices. Accessibility to the sub sector is restricted by HDB regulations. Public flats may be sold on the secondary market after a specified holding period, and the resale flats have higher selling prices as the prices are determined by market forces (Tu, 2003). The HDB executive condominium marketwas firstdeveloped in 1996 to provide high quality public condominiums, and the price is determined by both the market and the government. Although the latter two markets are free markets, entrance to them is limited.

The private owner–occupier housing market accommodates less than 10% of the total number of households. However, it is expected that the share of households will increase in the future. This is indicated by the rising private housing stock, which increased from 14% in 1989 to 18.1% in 1999. The rising trend reflects the government’s long-term planning embodied in the 1991 Concept Plan that aims at increasing the private housing stock to 30%. The private sector receives little subsidy from the government and thus is less regulated.

Similarly, there are two financing systems for housing in Singapore: the HDB public finance sector and the commercial finance sector. HDB flat owners can enjoy the subsidized mortgage rates provided byHDBpublic financing system if they are eligible for the subsidized loans. Under the current regulations, the HDB grants a subsidized loan to first-time homebuyers and also to second-time homebuyers who upgrade to another HDB flat. The private homeowners and homeowners who do not qualify for the subsidized loan will, however, have to secure their financing from banks and financial institutions.

The unique feature for housing finance in Singapore is the role of the mandatory saving scheme, Central Provident Fund (CPF). The CPF is a comprehensive social security savings plan. Employees and their employers make monthly contributions to the CPF that may be withdrawn upon retirement (http://www.cpf.gov.sg/). The use of retirement funds for homeownership has been allowed in Singapore since the 1970s.

In short, besides borrowing from the banks and financial institutions, homebuyers can also use the CPF to finance their purchase. The CPF may be used for down payment on a property purchase as well as for regular monthly debt service. The majority of the home purchases in Singapore are financed through the use of CPF.

While the CPF has been widely credited for the high home-ownership rate in Singapore, changes in CPF rules for property financing have significant implications and effects on the property market and prices (Ong, 1998, 2000a). It is well documented that CPF financing improves housing accessibility and affordability (Tu, 1999). Also, the financing for public HDB flats are now undertaken by commercial banks rather than provided by the HDB, making the two segments increasingly integrated (Ong and Sing, 2002).

Little, however, is understood about the post-purchase effects of CPF financing. The CPF Residential Property scheme provides that when a house, purchased before September 2002, is subsequently sold either for foreclosure or relocation, the sale proceeds must be used to repay the CPF savings first before being utilized to repay the mortgage balance. In other words, the portion of borrower equity financed by CPF funds is ‘protected’ until the borrower reaches retirement age. However, most, if not all, mortgages in Singapore are not non-recourse loans, and the borrower is still liable for any negative equity that may result from the difference in sale proceeds and the sum of the CPF refund and outstanding mortgage balance.

The shortfall has to be paid for by way of new equity (i.e., draw down on borrower wealth/savings), or it may be converted into an unsecured loan or recovered from bankruptcy proceedings against the borrower. To the best of our knowledge, the protection of CPF funds is an unusual arrangement and may be viewed as an anomaly.