Imagine that one day, you open a cupboard in your home and find a stack of money. You search a little longer and find yet another stack of money. You pinch yourself, and realise you’re not dreaming. You really are living in a house full of money! And the best part is, you can continue to live in your house, while enjoying all this money that you’ve just discovered. That’s the dream HDB is trying to sell you with the Lease Buyback Scheme. But is it really that simple?
1. Just what is the Lease Buyback Scheme?
The Lease Buyback Scheme has been around since 2009, but the latest changes took effect on 1st April this year in order to provide more elderly households with greater flexibility. Basically, the purpose of the Scheme is to give elderly residents the option of selling part of their HDB flat lease back to HDB for money.
Those who opt for the Lease Buyback Scheme can continue to stay in their flat for the duration of the shorter lease period. The proceeds of the sale will go towards your CPF Retirement Account, in order to provide a bigger monthly payout through CPF Life.
As of this year, the new eligibility conditions are:
- Residents in 4-room HDB flats or smaller
- Have a gross monthly household income of $10,000 or less
Still a bit hard to understand? It’s okay, let’s look at someone who’s now eligible for the Lease Buyback Scheme. We’ll call her Aunty Buay Sai.
2. What does this mean for Aunty Buay Sai and her 4-room HDB flat
Aunty Buay Sai is a 65 year old retiree and lives alone in a 4-room HDB flat. Her husband has passed away and her kids are all living overseas.
With the new enhancements to the scheme, Aunty Buay Sai is eligible for the Lease Buyback Scheme. In the past, she wouldn’t be eligible because 4-room flats were not included in the Lease Buyback Scheme.
Let’s say she has 65 years left on her HDB flat’s lease. She doesn’t expect to live beyond 95, so she confidently sells 35 years of her lease and keeps 30 years. HDB gives her $190,000 through the Lease Buyback Scheme.
First, the money she receives needs to top up her CPF Retirement Account. Because she’s the sole owner of the flat, she needs to top it up to the CPF Full Retirement Sum of $155,000. Say she’s been a homemaker all her life and has a negligible amount in her CPF. Therefore she tops up her Retirement Account to $155,000, leaving her with only $35,000 in cash proceeds.
So, after the Lease Buyback Scheme, she’s left with $35,000 in cash proceeds, and a Retirement Account that gives her $1,220 a month for the rest of her life via CPF Life. Of course, at the same time she’s not eligible to sell the flat anymore.
So, it’s a great deal for Aunty Buay Sai – going from having had no real income for most of her life, she now has a lump sum of $35,000 and a dedicated monthly payout of $1,220 from CPF Life. Sure, she’s lost the opportunity to sell her flat, but at least she’s not forced to move out of the home she bought together with her husband.
But imagine if Aunty Buay Sai’s children still lived with her, and she wanted them to continue to live in the house. Or if Aunty Buay Sai didn’t have any real sentimental attachment to the house, and was willing to downgrade to a studio apartment that had more appropriate facilities for the elderly and required less maintenance.She couldn’t do either with the Lease Buyback Scheme.
3. So… if it’s not a good deal, why is the Lease Buyback Scheme being so heavily promoted now?
The Lease Buyback Scheme has been around for years, but the take up rate has been very limited. However, there have been a significant number of people who’ve shown interest in the Scheme but have not been eligible for it in the past because they’ve either stayed in a 4-room HDB flat or have had a household income that exceeded $3,000 each month. Both of these restrictions have been lifted and now more people are eligible for the Lease Buyback Scheme.
By heavily promoting it, HDB is giving more people the opportunity to decide if the Lease Buyback Scheme best suits their purposes.
4. So, who’s actually going to benefit from the Lease Buyback Scheme?
As I see it, there are three kinds of elderly Singaporeans who would benefit.
a) Those like Aunty Buay Sai, who has no retirement savings to speak of. She needs money urgently as she enters into her later years. The Lease Buyback Scheme gives her a lump sum payout, as well as ensuring that she is able to receive a decent amount monthly through CPF Life.
b) Those like Aunty Buay Sai, who have children who are financially independent, but unable to support her. Alternatively, they may not have any children at all. Either way, there’s no need to hold on to the house beyond their life. The Lease Buyback Scheme allows these elderly Singaporeans to stay in their homes for the rest of their lives, and to live comfortably on lump sum cash payout, as well as the proceeds from their Retirement Account.
c) Those like Aunty Buay Sai, who don’t intend to live past 95, or whenever the shorter lease ends. Because, even though they won’t be left homeless, HDB will probably still take back the house, although they have committed to working out a new housing arrangement on a case-by-case basis.
In conclusion, the Lease Buyback Scheme is great for Singaporeans who have few other options due to their life situation. They’re not interested in wealth accumulation, and are more concerned about just living day to day. But for the average Singaporean, who probably bought the property not just to live in but also as an investment for the future, it’s definitely not the best choice to make.
Do you know anyone you might recommend the Lease Buyback Scheme to? Let us know.
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