Singapore is one of the richest countries in the world by GDP per capita standards (and also by Crazy Rich Asians standards). Thus, it is natural for Singaporeans to be envied by our neighbouring countries for being rich. Yet, most Singaporeans can relate to a common problem: Being asset rich and cash poor.
If you’re a Singaporean reaching retirement age, you are worth at least a few hundred thousand thanks to our HDB flat. But here’s the problem. Our HDB flat is an asset and not cash. To address this problem, the government introduced the lease buyback scheme to help Singaporeans turn our HDB from an asset into cash. Here’s everything you need to know about the lease buyback scheme and the considerations you need to make when applying for it.
Why was the lease buyback scheme introduced?
For those of you who are living in a private property, your best hope is for developers to en-bloc your property for you to encash. Since en-bloc isn’t really an option for those living in HDB flats, HDB came up with the idea of lease buyback. This is to allow HDB dwellers to unlock the value in your HDB so that you can safeguard your retirement needs.
Case study: How does the lease buyback scheme work?
Let’s understand how the lease buyback scheme works through a case study. Mr and Mrs Ong are a couple living in a fully paid joint-owned 4-room flat. The flat is worth $550,000 with a 65-year lease remaining. One day, they decide that they want to keep 30 years of their lease. They intend to sell 35 years of their lease back to HDB.
Based on HDB’s calculation, 35 years of lease is worth $232,000. The lump sum will be split equally between Mr and Mrs Ong. However, this doesn’t mean that both of them will receive $116,000 in cash. Once the tail-end lease is sold, the proceeds will be used to top up their CPF RA. Both of them need to have at least the Basic Retirement Sum (BRS) in their CPF RA. If they do not meet the BRS, the proceeds will be used to top up the difference. The cash that Mr and Mrs Ong can receive can be calculated using the following formula.
Cash Proceeds = Lease Buyback Proceeds – Required Top Up To Meet BRS
P.S. You can also choose to do more top-ups to your CPF RA. However, that will mean fewer cash proceeds for you.
Through the lease buyback scheme, you will not get the entire sum in cash. Instead, you will get a sizeable cash amount and a guaranteed monthly payout from CPF LIFE.
Who is eligible for the lease buyback scheme?
The lease buyback scheme is only applicable to those who are living in HDB flats. There are also other eligibility criteria that you need to fulfil.
For starters, you need to have at least 20 years of lease left to sell it back to HDB. Either you or your spouse needs to reach the eligibility age, which is currently set at age 65. You also cannot be in concurrent ownership of more than one property at the point of participation in the lease buyback scheme.
|Age||All owners must have reached the eligibility age (currently set at age 65) or older|
|Citizenship||At least one owner must be a Singapore Citizen|
|Income||Gross monthly household income of $12,000 or less|
|Flat type||All flat types|
|Property Ownership||No concurrent ownership of second property|
|Minimum Occupation Period||All owners have been living in the flat for at least 5 years|
|Minimum Lease||At least 20 years of lease to sell to HDB|
Previously, the lease buyback scheme was only applicable to those who are living in 4-room or smaller flats. Recently, Minister of National Development Lawrence Wong announced that the scheme will be expanded to all flat sizes. Thus, every Singaporean who owns an HDB will now have the choice to take part in the lease buyback scheme.
How many years of lease can you sell to HDB in the lease buyback scheme?
The number of years you can sell to HDB is dependent on the age of the younger owner between you and your spouse. You need to retain a minimum number of years of lease that ensures either of you can live in the flat till age 95.
|Age of Youngest Owner||Lease Retained (Minimum)||Your Options (Years to sell back)|
|Eligibility Age (currently 65) – 69||30||35|
|70 – 74||25||30, 35|
|75 – 79||20||25, 30, 35|
|80 and above||15||20, 25, 30, 35|
Read also: 5 Questions to Ask Before Purchasing a House
Who is the lease buyback scheme targeted at?
When the lease buyback scheme was first introduced, there are two groups that were targeted.
Firstly, it was targeted at those who are having trouble with retirement savings. In particular, the government wanted to help the group of Singaporeans who are asset rich and cash poor. These people are living in HDBs worth a few hundred thousand but do not have enough cash flow to sustain their day-to-day lifestyle.
Secondly, it was targeted at Singaporeans who feel that there is no point holding onto an asset beyond your lifespan. You’d rather “encash” your hard-earned money locked up in your HDB and spend it in your retirement days, e.g. going for long holiday trips.
What do you need to consider before going for the lease buyback scheme?
1. What happens if you outlive your leftover lease?
After you sell back some of the lease to HDB, you will be left with a shorter lease. So, what happens if you outlive your leftover lease? Since the lease buyback scheme mechanism ensures your flat stays with you till age 95, it is unlikely.
But in the unlikely event that you live past age 95, your HDB flat will be returned to HDB when your lease is up. You will need to seek an alternate shelter either by renting another place or move to retirement kampungs like the one in Admiralty. But according to HDB, you will not be left homeless. HDB will look into your case to determine the appropriate housing arrangement for you. However, HDB will consider your family support, health condition, and financial status when making the decision.
2. Is the lease buyback scheme your only option?
After the recent National Day Rally, Singaporeans would point out that there is the Voluntary Enbloc Redevelopment Scheme (VERS). While that is a viable option, details on VERS will not be out till years down the road. Prior to VERS, there was the Selective Enbloc Redevelopment Scheme (SERS). However, Minister of National Development Lawrence Wong constantly reminded us that SERS is only for the “selected few”. So, stop daydreaming about SERS. It seems that the lease buyback scheme is your only option.
a. Get monthly cashflow by renting out your room(s)
Well, not quite. There are still two ways you can you unlock the value in your HDB flat. The first method is to rent out your flat. Although you can rent out your whole flat and stay in Johor Bahru, that’s not what we are advocating. Rather, you can think along the lines of renting out a spare room. This allows you to get monthly cash flow from your HDB flat, albeit with some sacrifices of your privacy. This is a viable method for those of you who have underutilised rooms.
b. Downsize your HDB and get the lump sum in cash
Another method is to downsize your HDB flat. If you are living in a 4-room flat, you can consider selling your flat and getting a 3-room (or smaller flat). Alternatively, you can move into a retirement kampung that has more dedicated facilities and amenities for retirees. By downsizing your flat, you can get the lump sum proceeds in cash.
There are downsides to this approach as well. First, it takes time for the process of downsizing. You need to go through both the process of selling and buying a flat, which can easily take up to a year. Second, you still need to top up your CPF upon selling your HDB flat. Third, when you purchase the next home, you no longer get grants from the government. You might eventually end up without getting much cash from the sale even after the tedious flat selling and buying process.