Lease Buyback Scheme – Is This HDB Scheme Really A Lifesaver for Elderly Singaporeans?
HDB’s Lease Buyback Scheme has been growing in popularity in the past few years, thanks to the government promoting it more aggressively as a magic solution to the age-old problem of the elderly in Singapore not having enough retirement funds. In the recent National Day Rally 2018, PM Lee Hsien Loong alluded to a possible expansion of the current scheme.
If you’re wondering what exactly this Lease Buyback Scheme is and whether it’s really all that great, you’ve come to the right place. In this article, we’ll explain how this HDB scheme works, who it might benefit and (more importantly) some of its pitfalls.
Lease Buyback Scheme? Simi lai eh?
Imagine this: You’re in your 60s, living in an HDB flat that’s still got 65 years left on the lease. Unless you’ve been drinking the blood of virgins to extend your lifespan, the HDB flat will probably “outlive” you by a good 35 years or so. Now, what if you have the option of making some extra cash by selling the last 35 years of your lease back to HDB?
That’s what the Lease Buyback Scheme is all about. The HDB scheme allows elderly residents the option of selling the tail end of their HDB flat lease back to HDB for money.
This HDB scheme has been around since 2009, but in 2015 HDB introduced a couple of changes to make it more flexible. For a start, you can take part in the Lease Buyback Scheme
if your HDB flat is any size up to a 4-room flat, and your gross monthly household income is anything up to $12,000.
|Eligibility for Lease Buyback Scheme|
|Flat size||All HDB flat types|
|Monthly household income||Up to $12,000|
[Update 16/1/2019: While previously available to only those in four-room or smaller HDB flats, the Lease Buyback Scheme will be extended to all HDB flat types from 1 January 2019, including five-room types as well. The monthly household income has also been increased from $10,000 to $12,000.]
In addition, you won’t have to return the flat to the HDB right away. You 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.
This Lease Buyback Scheme sure sounds like a lifesaver!
Yup, that’s what HDB wants you to think. They want you to imagine that Lease Buyback Scheme is like opening a cupboard in your flat and finding a stack 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.)
It appears that more and more seniors have bought into this dream, because there’s a growing number of Singaporeans participating in the Lease Buyback Scheme.
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.
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.
How does the Lease Buyback Scheme really work?
Let’s illustrate how the Lease Buyback Scheme works with an example.
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. Having no income at all, she is eligible for 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 RA (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 next-to-nothing in her CPF. Therefore she tops up her Retirement Account to $155,000, leaving her with only $35,000 in cash proceeds.
After the Lease Buyback Scheme, she’s left with $35,000 in cash proceeds, plus a CPF RA 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 + a dedicated monthly payout of $1,220 from CPF Life.
Yes, you read right – the payout will go into your CPF account
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. They can only pocket in cash any moneys in excess.
The Full Retirement Sum increases every year. Currently, it stands at $181,000 for those who will turn 55 in 2020. By the time YOU turn 55, the FRS might be so high that you may find yourself with very little cash to pocket.
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. BRS is $90,500 for those who turn 55 in 2020 and will keep increasing as well.
What this means is that unless you already have a good amount of money in your CPF account, you might not be getting much cash upfront on the sale of your HDB lease. (You will, however, receive monthly payouts from CPF Life.)
Now, we’re not slamming CPF. The system 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 what about when you’re older? That monthly CPF allowance might not be that useful, especially if you need the cash for large one-time expenses.
Sounds like there might be some drawbacks to the Lease Buyback Scheme…
No shit. Another big drawback is after you take part in the Lease Buyback Scheme, you wouldn’t be able to sell the flat, even if some siao lang buyer offers you $1 million.
Don’t you get some money from HDB, though? Yes, but HDB calculates the value of your lease with the assumption that the value decreases over time. Even if the property value does rise, this increase will not be taken into consideration. In other words, you might be getting a bad deal.
In addition, 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 Aunty Buay Sai’s children ever came back to Singapore, they wouldn’t be able to continue living in her house.
Remember that 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, but who knows what sort of alternative accommodation options you will have?
If not the Lease Buyback Scheme, what else can the elderly do?
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, you have a few options.
First, consider selling your flat on the HDB resale market and downsizing to a smaller flat. This is a good option if the property value rises during your lease, as you’re likely to get more from a sale than from HDB’s deflated valuation of your remaining lease.
You can take the money and buy a smaller flat, or move into, say, a studio apartment in a retirement condo that has more appropriate facilities for the elderly.
If you really really love your flat and want to live in it for the rest of your life, another option you can consider is to rent out the spare rooms. This allows you to make money from the underutilised rooms without the risks inherent in the Lease Buyback Scheme. Plus, you’ll be getting the money in cash rather than CPF topups.
Who would benefit from the Lease Buyback Scheme?
The Lease Buyback Scheme allows the elderly Singaporeans to stay in their homes for the rest of their lives, and to live comfortably on the lump sum cash payout + proceeds from their Retirement Account.
So, you might benefit from the Lease Buyback Scheme if…
You have no retirement savings to speak of: Need money urgently in your golden years, but forgot to start saving money earlier on? The Lease Buyback Scheme gives you a lump sum payout, as well as ensuring that you can get a decent amount monthly through CPF Life.
You’re not worried about outliving the shortened lease: When you sign up for the Lease Buyback Scheme, HDB will probably still take back the house whether you’re dead or alive on the “due date”. Although HDB will supposedly help you to make sure you’re not homeless, any new housing arrangement is on a case-by-case basis.
You don’t need to hold on to the house beyond your life: You’ll probably only be comfortable returning the lease to the HDB if you have no kids or confirm guarantee chop that your children won’t want to live in the house when you’re gone.
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 Scheme? Tell us in the comments!