CPF loss/Bank Loss answered:

There are 20 pages to this A-2 table highlighting the financial details of 239 owners (see below). This table was submitted at the STB by the en bloc lawyer; I have scanned a few pages to serve as examples.

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I believe there is a fundamental flaw in yr presentation. I will be very disturbed if yr inf is correct.

My information comes from documents submitted at the STB. I am always looking out for flaws in my writing and understanding. I am a blogger not an expert. I welcome comments such as yours, we can all come to a better understanding through questions and challenges. I will NOT release the names and unit numbers of the owners whose financial information is listed in the A-2 Table. Even if someone requests to see the original documents, I would have to photocopy and remove the unit identification (Columns A,B,C) before release. This information, while it is a matter of public record, has not been disseminated widely, the minority group has only one copy and it is in my possession.

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Enbloc price: S$395 mil / 560 units = S$705k on average (nominal proceeds, column G)

Beta sum: S$10 mil / 560 units = ~S$18k (assuming no claim, Alpha owners excluded)

Total proceeds from enbloc = ~S$723k (assuming no claim, Alpha owners excluded)

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All calculations are based on the nominal proceeds. The total proceeds were not and could not be given at the STB, as the table was incomplete and many owners financial details were unknown. The costs & expenses of the sale were also not included as the final cost was indeterminable at the time. Waterfront View's C&E were approx. $20k, I would have expected TC's to be higher - with the Senior Counsels etc...

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Each SP will receive S$723k more or less.

Not true. Each owner will receive their nominal sales proceeds (Column G) and the Omega owners only would have received the balance of the Beta sum

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The buyer will not pay you one single cent more, becos total sales px is S$405 mil.

True -though he could make extra-gratia payments if so inclined.

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Regardless the order of charge, there will be financial loss; it is either a cash loss or a CPF loss.

Financial loss (as defined by LTSA) calculation is based on your buy price. It is represented in column R on the Table and is recoverable from the Alpha sum. It is not dependent on order of charge as it has nothing to do with redemption of mortgages or charges.

CPF loss is NOT considered financial loss (Waterfront View High Court decision).

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Illustration:

Buy px S$580k - O/s bank loan S$300k -CPF refund S$500k.

This is a hypothetical case, I am dealing with actual figures.

At such a low buy price, this owner would most definitely NOT QUALIFY as a financial loss owner in the meaning of the LTSA rules.

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1. Bank 1st charge / CPF 2nd charge

Enbloc proceeds S$723k - bank loan S$300k - CPF refund S$500k = CPF loss -S$77k (need not top up)

Sale proceeds are NOT $723k. As can be seen from the en bloc lawyer's A-2 Table, calculations are done on the nominal sum (G). Hypothetically, the owner would have indeed suffered an unrecoverable loss of $95k to his CPF account (a hole in his account). This is NOT financial loss.

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2. CPF 1st charge Bank 2nd charge

Enbloc proceeds S$723k - CPF refund S$500k - bank loan S$300k = Cash loss -S$77k (must settle b4 bank discharge)

Ditto to above. Yes, the $95k would have been recovered from the Beta Sum. Had there been no nBeta sum, then the money would have had to come from either the majority owners or the buyer. The STB could not grant the sale unless this outstanding bank charge was satisfied.

NOTE: THESE TWO SCENARIOS ARE NOT CONSIDERED FINANCIAL LOSSES. THEY ARE INSUFFICIENCIES, SHORTFALLS - WHICH ARE COMPLETELY DIFFERENT.

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Personally, I feel CPF 2nd charge is more relevant in today context. It afford owner the option to downgrade without topping up CPF loss, which is not the case in CPF 1st charge becos one hv to settle loan shortfall....remember the aftermath of 97 crisis when many pple were trapped in negative equity situation and were forced to continue with heavy servicing burden as they cant afford to settle loan shortfall.

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" it affords the owner the option to downgrade" - no, it forces the owner to downgrade against his will. CPF second may mean he loses a large sum of money in his CPF account. The owner may be at an age where he can't take out a new bank loan, or just a small one with only a very short repayment period, so his CPF cache becomes very important. So if he takes a hit in his CPF, how is he to pay for a new home? This is not 1997, and an enbloc sale is supposed to ENRICH you not IMPOVERISH you. There should be no talk of 'losses' or 'holes in CPF accounts' or 'enforced downgrading'! If there is, then the sale price is way too low!!

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The bank's shortfall will always have to be covered in an enbloc sale, if not, then the STB can rule no sale, so CPF first is the best. Your CPF is fully redeemed AND your bank loan is fully redeemed. You then have the option to downgrade if that is your desire.

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The CPF will waive outstanding amounts in an enbloc sale. I believe the owner will still be liable to top up the outstanding amount in an individual sale - but I am not 100% sure of this fact. perhaps the CPF will waive on a case by case basis.

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Hence, the real life example you quoted in TC:- "Blk 130 – Buy price $605k – CPF 1st charge a whopping $949,583 – no outstanding bank loan!!" is highly unlikely as enbloc proceeds is S$723k only, instead of gain he will suffer CPF loss.

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Please refer to the Table A-2. It is an actual case. This person does not qualify for financial loss in the meaning of the LTSA rules as his buy price is too low. But because he is CPF first charge - he would have gotten $248,609 from the Beta sum as can be seen from the last column (W).

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The second to last column (V) is 'CAPPED CPF REDEMPTION IF BANK IS 1ST CHARGE' and if a figure is bracketed eg ($222,552) then that means that loss will not be covered. (CPF hole)

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Here is another example of an owner in similar circumstances:

Nominal proceeds $698,406 , Buy price $486k, no bank loan, CPF $792,421. Cpf first charge

Top up from beta sum: $95,916
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If my understanding on the above is correct, I hope you will keep your original posting but add on my findings for readers' benefit.

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I understand your viewpoint perfectly. It indeed seems logical that the outstanding amount owed to the CPF would be waived in cases where the CPF is first charge and there is no Bank loan . If I didn't have the figures in front of me, I would actually agree with you. But the table says differently, these shortfalls were covered by the Beta - so it must have been necessary to do so. Hence, my conclusion that CPF shortfalls in first charges have to be covered. If they didn't why was 'free money' given out to these 2 cases? It really was a surprise to me, too. What say you?

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Even I find this whole issue of financial loss confusing sometimes and must backtrack to do a rethink! People must realise there are 2 calculations to be done:

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1) Are you a financial loss under LTSA rules ? - If your buy price is above $640k, then maybe (and I'm only talking about this enbloc's sale price here). This has nothing to do with order of charge.

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2) Do you suffer from insufficient funds to pay outstanding charges? This has NOTHING to do with 1). You don't have to be a financial loss sufferer (Alpha) to have insufficiencies. The order of charge is super important in this calculation - it determines whether you are a CPF loser or winner. The bank charge will always be covered.

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The failed enbloc sale should be a lesson to all of us. If we don't understand and learn from our mistakes then there is a chance we will have to go through this all over again. This is an opportunity to go through every detail, reappraise preconceptions, clear misconceptions and come to a better understanding of the nitty gritty details.

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I am very sure the effected owners who signed did not realise their CPF would take such huge hits - as indeed the CPF ruling to waive did not come out until many months after they had signed. But it was too late for them then to rescind anyway, even if they had wanted to, and signing the CSA means you can never appeal to the STB, no matter what happens. I really, really hope people will educate themselves on the many, many pitfalls of en bloc and go into the next round, if and when that happens, with their eyes wide open.


(2010)
Managed to find a way to put the table (edited to hide unit identification) on the blog 

A2 at STB, edited for privacy