THE TAIL-END
One limitation is flexibility. Once the sale of the lease is completed, owners will not be able to sell the flats in the resale market, rent out the whole unit, or transfer them to their children until they pass on.
Second, since the scheme only allows for the sale of the “tail-end” lease, it is not as financially attractive to those who are looking to sell their property for its full market value. The “tail-end” lease refers to the final part of the 99-year lease of the HDB flat whose value, due to depreciation and financing constraints, is generally much lower in value than the “retained lease” that owners will retain for their use.
Third is reduced inheritance: By selling a portion of the lease, owners will reduce the value of the flats, which could impact the inheritance they leave behind. Should they live another 20 years, perhaps with little cash and needing financial support, and then bequeath the flat with 20 to 30 years of lease remaining, then the residual “tail end” value inherited by their loved ones may not amount to much.
On balance, however, the Lease Buyback Scheme is a viable option for elderly homeowners who are looking to monetise a portion of their remaining lease and continue living in their homes for the rest of their lives.
It is especially feasible for retirees who are planning forward and who realise that they may have to tighten their belts in the near future, as they belong to the relatively large demographic segment of baby boomers who are “asset rich, cash poor”.
For these flat owners, there is no better timing to do a partial cash out on their nest egg as HDB resale values have climbed significantly in the last three years, as the value of the Lease Buyback Scheme should be higher now than it was before this price surge.
With increased property cooling measures, higher interest rates, stubbornly high inflation, headwinds in employment for banking and tech sectors as well as a big supply of Build-To-Order (BTO) flats and private residential completions, HDB resale prices are likely to be at a new peak now, with more downside risks than up for the rest of 2023 and well into 2024.
HDB resale prices in the first three months grew at its slowest pace since COVID-19 struck; flash estimates for the Resale Price Index show growth at 0.9 per cent in the first quarter, slower than the 2.3 per cent increase in the fourth quarter of 2022.
As with all major decisions, it is always a good idea for seniors to discuss their financial needs with their families and loved ones. A well-planned retirement nest egg can serve as a beacon of financial security and independence for seniors in Singapore, giving them peace of mind.
Ku Swee Yong is a director at real estate consulting firm International Property Advisor Pte Ltd and a researcher with the Singapore University of Social Sciences focused on autonomous vehicles and urban planning.