More and more seniors are participating in the HDB’s Lease Buyback Scheme. Thanks in part to the changes last year which raised the income ceiling and allowed owners of 4-room flats to participate, more than twice the number of people signed up for the scheme in comparison to previous years.
If the news reports are to be believed, the Lease Buyback scheme is a life saver for old folks who don’t have enough retirement funds, and lets them cash out on the remaining years of their HDB flats’ leases.
Selling 30 years of a lease which you won’t be alive to enjoy anyway and receiving a payout of $1,000 per month in exchange might not sound too bad when you’re used to relying on handouts from your kids. But are you really getting that good of a deal?
Elsewhere on MoneySmart, the situations in which you might be able to benefit from the scheme have already been discussed. We have a sneaking feeling not many people would fall under those categories. Here are four reasons seniors shouldn’t be so quick to sign up.
Your payouts might have to go into your CPF Retirement Account
Love it or hate it, CPF does have its utility when it comes to young people who can’t save for retirement in that they are forced to put money aside for the future.
But the system does have some disadvantages, particularly in how inflexible it is when it comes to making withdrawals. The rules governing when and how much you can withdraw your CPF funds are very strict, even if you need the money for medical reasons.
Individual participants in the Lease Buyback Scheme will have to use the money received from the sale of their lease to top up their CPF retirement accounts to the Full Retirement Sum (that’s $161,000 for those who turned 55 on or after 1 July 2015). They can only pocket in cash any moneys in excess.
If the HDB flat in question has two or more owners, each owner can only pocket in cash the proceeds remaining after topping up their CPF accounts to the Basic Retirement Sum of $80,500.
What this means is that unless these retirees already have a good amount of money in their CPF accounts, they might not be getting much cash upfront on the sale of their HDB lease. Once the money goes into their CPF retirement accounts, they will receive monthly payouts.
For those whose CPF accounts are lacking and are in need of a lump sum of cash, the lease buyback may not be the best option.
You will probably get a better deal if you simply hold on to your property and sell it later
The Lease Buyback Scheme is, very bluntly put, a last resort, for people who have no other options. If you’re not that desperate for the money right now and can afford to hold on to your property for a couple of years before selling it and downgrading, you’ll probably get a better deal.
That’s because when the value of your lease is calculated for the Lease Buyback transaction, it will be assumed that it decreases over time. The possibility of property values rising during your lease will not be taken into consideration.
Despite the doom and gloom in the residential property market thanks to the cooling measures, historically Singapore property values have always risen significantly in the long-term.
In other words, you will be getting a bad deal in terms of value by selling your lease.
Your property cannot be passed down to your family
Once you’ve sold the remaining years of your lease, you can bet the government will be waiting to swoop in and take the property back from you when time’s up, whether you’re already dead or not.
There have been reassurances that you will not be left out on the streets to rot if you outlive what’s left of your lease, and that’s great for you—but not so great for your family.
Since you’ll lose ownership of your flat you won’t be able to will anything to your family members when you pass away. If this is an issue, you’ll want to look to alternative ways of financing your retirement, such as the following.
There are more attractive options like subletting or downsizing
The Lease Buyback Scheme gives you the short end of the stick in terms of getting as much value as you can out of your flat. If you really really love your flat and want to live in it for the rest of your life, and alone, thank you very much, you might have no other choice. But know that you are making sacrifices to do so.
But if you’re willing to stomach some changes to your environment, you can get a better deal money-wise by renting out the rooms in your current flat or selling your flat on the open market and then downgrading to a smaller unit.
If you or a family member are seriously considering doing the Lease Buyback thing, at least do the math before making a decision instead of blindly going with the most convenient option.
Would you participate in the Lease Buyback Scene as a senior? Tell us in the comments!
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