As Singaporeans age and live longer, the government is rightfully thinking of ways to help seniors cope financially, especially those who do not have enough cash either in the CPF or in the bank but owns a HDB unit. At the same time, it wants to support the policy of “ageing-in-place”. According to HDB, “through the Lease Buyback Scheme (LBS), you will be able to monetise your flat to receive a stream of income in your retirement years, while continuing to live in it. ” That idea sounds quite decent. Since January 1, 2019, about 130,000 HDB unit owners are now eligible for the LBS. Before you sign the dotted line, here are 4 things you should know.
- You will only get cash in your pocket after you have topped up the minimum balance in your Retirement Account. The idea is to have you put away the minimum proceeds from the LBS to allow you to participate in CPF LIFE that will provide you with a guaranteed monthly income for the rest of your life. If getting a big windfall of cash is your idea, do the math before signing up for LBS.
- There is a good chance that you will not be able to stay in your HDB unit if you outlive your lease – or at least there is no guarantee that you would be allowed to. This is what HDB officially says – “If you outlive the lease of your flat, you will not be left homeless. We will look into your circumstances such as family support, health condition, and financial status, and work out an appropriate housing arrangement with you and your family members. ” Understand that that it is a “statement of intent” that has no legal force — and that you must be comfortable with trusting whatever happens to the future government’s policy some decades down the road!
- Once you agree to sign the dotted line, you cannot undo the LBS agreement – it is final. You should know that if the value of your unit should go up, you will not benefit from it — nor would you lose if the value goes down. So if by chance, you are offered a huge amount to buy your HDB unit in the resale market, you can no longer sell. There is no provision to allow you to “give-back” the money you received for the LBS to “buy-back” the remaining years that you have sold back to HDB. Remember – IT IS FINAL.
- Before you sign, it is a good idea to talk to a financial adviser or someone knowledgeable about personal finances – other than the HDB person. Because every situation is different, it is important to get a professional to help you fully understand – what is the financial problem that you are trying to solve and if LBS is the right answer. If you need regular monthly cash flow, one option to consider is renting out the spare room in your unit. If you live in a popular area, rentals can increase over time and you may benefit from that. If you need to raise a lump sum of cash, downsizing has always been an option for owners of larger or well located units. Make sure that you fully compare each option against what LBS has to offer — before you sign!
The best way to look at LBS is to consider it as another option – among others. I believe the government’s intent of widening the eligibility for the LBS is in the right direction – but it does not imply that the LBS is right for everyone.