Lease buyback: 75% of elderly HDB households can benefit

[SINGAPORE] Three in every four elderly HDB households can benefit from the enhanced lease buyback scheme (LBS), up from 35 per cent previously. But a huge jump in take-up rates of the scheme is unlikely, said Minister for National Development Khaw Boon Wan on Wednesday.

Other enhancements to the LBS, which will also kick in from April next year, are aimed at offering households greater flexibility on the length of lease to retain and the amount of proceeds to be received in cash upfront - issues that naysayers of the scheme have earlier picked at.

Mr Khaw said that he expects the take-up rate for the enhanced scheme to increase by a few hundred or thousand, but not jump by "tens of thousands".

Many residents that he spoke to in his Sembawang GRC hailed the LBS enhancements "a good idea" but expressed that they will not tap the scheme now as they are financially supported by their children or have passive income from subletting a room.

"But it does not matter whether it is a thousand or ten thousand. The scheme is there and we will make sure that it will be implemented the way we have described it," Mr Khaw said.

The scheme has seen a low take-up rate since its inception in 2009, when it allowed elderly households in three-room or smaller flats to retain a 30-year lease and sell back the remaining to HDB. The sales proceeds are used to top up their CPF Retirement Account (CPF RA), which can in turn be used to buy annuity plan.

So far, only about 800 households have signed up for the scheme, of which some 340 households joined only after some enhancements were made in 2013.

According to MND, Singapore is in a sweet spot for the enhanced LBS given that 80 per cent of the 290,000 HDB flats owned by seniors aged 55 years and above are fully paid-up and sitting on net equity.

Besides extending the scheme to four-room flats, the government is raising the household income ceiling from S$3,000 to S$10,000. Households joining the scheme can also choose the length of the lease to retain, up to 35 years, based on their age and preferences, instead of having one standard 30-year lease.

Instead of topping up their CPF RA to the full age-adjusted Minimum Sum, joint flat owners need to top up to only half of their Minimum Sums. This allows joint owners to receive more cash upfront, but still subject to a cap of S$100,000.

But Mr Khaw urged the elderly to exercise prudence with the excess cash proceeds - a point that he also stressed in his blog on Wednesday.

"While these enhancements are good, I do worry about some elderly spending unwisely away the substantial cash proceeds," he blogged. "For example, many overseas properties are being marketed here. There are bound to be disappointments and even losses."

The elderly have the option of voluntarily using these cash proceeds to top-up their CPF RAs or their spouses' CPF RAs, Mr Khaw said.

PropNex Realty chief executive Mohamed Ismail said he expects "multi-fold increase" in the applications for the scheme, with possibly more than 1,000 applicants within a year when changes to LBS kicks in.

ERA Realty key executive officer Eugene Lim noted that while the pool of eligible households is expanded, this is unlikely to cause a dent to the supply of resale flats in the market.

There remains a prevailing mindset among the elderly that the HDB flat is an asset that they wish to bequeath to the next generation, he said.

Cushman & Wakefield research director Teo Li Kim noted that one downside of the LBS scheme is still the uncertainty concerning life expectancy. "While HDB has given assurance that no one will be displaced if they outlive the 30-year lease, there is no clause covering such an event in the LBS contract," she said.

Mr Khaw told reporters that the scheme is continually reviewed to stay relevant to its targeted beneficiaries as their preferences and life expectancies change over time.

He also conceded that any changes in HDB resale prices could temporarily affect the scheme's demand, since the value of the lease is calculated based on prevailing market value. But there are bound to be market upturns and downturns within a 30-year lease period, he said, adding that this is a long term scheme.