HDB’s lease buyback scheme launched

Source : Straits Times - 2 Mar 2009

MR KOH Chiong Eng’s three-room HDB flat at Tampines is his biggest asset. The 72-year-old petrol station attendant and his 69-year-old wife, Madam Lim Poh Choon, have lived there for 23 years.

Mr Koh, who takes home $800 a month, does not think he will lose his job any time soon. He has about $55,000 in savings and CPF.

But with the economy in such an uncertain state, he took what he called the logical step: he ‘unlocked’ the cash from his flat.

He is one of five elderly people who became the first to sign up for the Government’s Lease Buyback Scheme launched yesterday.

Basically, he is selling 30 years of the 76 years left of his lease to the Government - in return for $5,000 cash and a monthly annuity payout of about $500 from CPF Life.

‘We’re both getting old and the monthly payout will be very helpful,’ said Mr Koh in Mandarin.

‘I’ve a 42-year-old daughter who sells electronics, but she doesn’t give us a monthly sum as she doesn’t earn very much and has two children to support.’

Mr Koh is not worried that his daughter would be left high and dry should anything happen to him and his wife any time soon.

She can still get a refund of the remaining flat lease as well as a full refund of the unused premium from the annuity plan.

The buyback scheme, first announced by Prime Minister Lee Hsien Loong at the National Day Rally two years ago, is the latest in recent years to help retirees use their home to fund their living expenses.

Currently, they can move in with their children while subletting their whole flat; sell their flat and move to a smaller flat; or take even take up a reverse mortgage on their flat.

The last option, which allows home owners to borrow against the value of their property, is offered by insurers like NTUC Income.

But this scheme has not been popular as people are afraid the amount they have withdrawn plus interest may exceed the value of their flat at some point in the future, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

According to the Committee on Ageing Issues, residents aged 65 years or older will triple from 300,000 currently to 900,000 in 2030.

In all, about 25,000 households are eligible for the buyback scheme, which is limited to those above 62 living in three-room flats and smaller. They represent about 70 per cent of elderly households in two- and three-room flats.

About 600 Tampines and Simei residents eligible for the scheme were invited to the launch, officiated by National Development Minister Mah Bow Tan.

The scheme, he said, builds on Singapore’s life-cycle to home ownership. ‘For the young couple, HDB helps them purchase their first flat…When the family reaches old age, HDB gives them a second set of ‘keys’ - this time, to unlock or monetise their flat’s value,’ said Mr Mah.

If the flat owner dies before the 30 years is up, his family gets a pro-rated refund from HDB, he said.

‘HDB will (also) work with them to ensure a roof over their head beyond the 30 years.’

Mr Mah added: ‘Some residents have asked me: ‘Why is the Government forcing them to sell their flats?’ I want to say clearly that we’re not forcing anyone to sell anything.’

Mr Bohari Markani, 78, is one of those who does not intend to get on the scheme. He wants to pass down his three-room flat in Tampines to his 51-year-old daughter, Asnah, who is unemployed.

HDB will organise exhibitions at 11 locations including MacPherson, Queenstown, Toa Payoh Central, Radin Mas and Kampong Glam to explain how the scheme works.

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The scheme

IT IS meant for Singaporeans owning three-room or smaller flats where the outstanding mortgage loan is $5,000 or less. They must also:

~ be at least 62 years old;
~ not have a household income of more than $3,000;
~ not have previously owned a four-room or larger flat or private property;
~ not have enjoyed more than one housing subsidy;
~ have owned the existing flat for five years or more.

How it works

LET us say a man, aged 62, has a three-room flat with 70 years left on its lease and which fetches $236,000 in the market.

What happens: HDB buys 40 years of the lease, worth $104,000. The Government tops this up with a subsidy of $10,000. This totals $114,000.The man continues to stay in the flat, which has a lease of 30 years left.

What he gets: $5,000 in cash upfront and $530 a month as the remaining $109,000 will be used to buy an annuity from CPF Board that pays him for life.(The equivalent payout for a 62-year-old woman is $490.)

If the flat is jointly owned by an elderly couple both aged 62, the monthly payout is $510.

If he dies within 30 years: His wife or child who live in the flat can stay there for what is left of the 30 years.They have another option, which is to return the flat to HDB and get a refund for the remaining lease.

If they are named as his beneficiaries, they will be refunded the unused premium of the annuity plan.