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Your Key to a Happy Retirement in Your HDB? Let’s Unveil The Mystery Behind the Lease Buyback Scheme!

Posted by Jayson Ang on March 30, 2024

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TLDR

The Lease Buyback Scheme (LBS) is gaining traction among older Singaporeans looking to boost their retirement income by selling unused lease years of their HDB flats. Despite initial hesitance, factors such as attachment to familiar surroundings, financial constraints, evolving property market dynamics, and changing perceptions of leaving HDB flats as inheritance are shaping the increasing popularity of LBS. As Singapore’s population ages, self-reliance and securing healthy retirement funds are becoming priorities over traditional notions of legacy through property inheritance. Considerations for leveraging LBS include location uniqueness, financial implications, market trends, and redefining inheritance strategies.

According to a recent article in the Straits Times, an increasing number of older folks are taking advantage of the Lease Buyback Scheme (LBS). In 2022, about 2,860 seniors used this scheme. That’s a slight increase from the 2,790 who did so the previous year. Now, let’s be real – these numbers are still small potatoes. When you think about how many seniors live in HDB flats, 2,860 is like a single raindrop in a thunderstorm. So, it’s safe to say that the LBS isn’t exactly the hottest ticket in town right now. But here’s my prediction: not only will this scheme become more popular over time, but it could even become the standard way of doing things (especially as they keep making it better). And here’s why:

Alright, let’s chat about this thing called LBS. If you’re craving all the nitty-gritty details, there’s a whole article right here for you to dive into. But if you’d rather a quick rundown, here it goes:

Imagine being a Singaporean sitting on an HDB flat that’s got some years left on its lease. You’re not using those years and you’re wondering how you could get some extra cash for your retirement. LBS might be your answer. It lets you sell back those unused years, adding a nice little bonus to your CPF. And the best part? You don’t have to say goodbye to your flat.

There’s a catch, though. Once you’ve gone down the LBS route, you can’t put your flat up for sale in the open market. So, if someone strolls up one day offering big bucks for your place, you’ll be biting your lip with regret. Also, if you were planning to leave your flat as a legacy for your children, this might not sit too well with you.

Now, it’s not like everyone is jumping on the LBS bandwagon. Most seniors are choosing to stick it out till the end or sell and downsize instead.

But don’t count LBS out just yet. Here’s why we think it might just become more popular:

Not every location can be duplicated.
Money matters and financing issues abound.
The future of the resale flat market looks set for some changes.
People are starting to realize that flats may not be the best heirlooms.
there you have it, a quick and easy guide to LBS. Whether it’s for you or not, that’s a decision only you can make.

1. Not Every Location Can Be Duplicated

At the most basic level, this is about not having public transit or shopping centers close by. Anyone who’s had to move because of unforeseen circumstances knows how tough it can be.

(I remember when I had to leave our cozy place near Bedok Reservoir to a house in a secluded area during my younger years. Honestly, I think I walked more going to and from the bus stop than I did during national service).

But digging deeper, it’s not just about the proximity of facilities. Older folks often develop strong connections with their environment. They become familiar with the people they see every day and anticipate their daily chats. In my neighborhood, for instance, not only do the elderly know each other, but they also know the names of their grandchildren’s pets.

Older people also depend heavily on regular routines. Some of them absolutely need to have certain bus routes close to them because those are the only ones they’re accustomed to. The thought of learning new routes can be daunting and unsettling – and that could make them less likely to go out if they had to move.

(By the way, the subway lines are getting more complicated too. They’ve gone from the simple red and green lines of my childhood to something that looks more like my spider veins).

Because of all this, I believe more aging Singaporeans will prefer to age in place. It allows them to stay put, retain their friends and stick to their routines.

Keep in mind that by 2030, nearly one in four of us might be aged 65 or over. When we’re young or even middle-aged, moving might seem like an adventure. But as we age, our perspective changes.

2. Money Matters And Financing Issues Abound

It’s easy to forget about loan durations and age-related borrowing restrictions, especially in Singapore. Most of us don’t give it much thought until we’re directly affected.

But think about this: as you approach or reach retirement, getting a loan from the bank becomes quite a task. Plus, moving house isn’t cheap – there are bills to pay for the movers, home renovations and other unexpected expenses.

When you’re young, you can usually get a bunch of loans to cover these costs. But once you hit 65, banks aren’t so eager to hand over their money.

There are also many seniors who only have their CPF payouts to rely on. Not all kids are financially successful enough to provide for their parents, and with our current birth rates, more and more seniors are finding they have no children to depend on.

Don’t get me wrong, I’m confident that banks or the government will come up with new ways to help out. There will likely be more financing options for seniors in the future. And it’s just as well, considering they’re soon going to be the majority.

However, these hurdles might discourage people from moving house. That’s why the LBS, which could boost your retirement income without having to contact a realtor, may seem like a more attractive option.

3. The Future Of The Resale Flat Market Looks Set For Some Changes

Today, it feels like million-dollar apartments are becoming the norm in this crazy housing market where demand often surpasses supply.

Can’t help but feel like the system expects young singles under 35 to carve out living spaces in Bukit Timah or something similar.

Looking ahead though, I believe the chances of someone swooping in with a golden offer for your apartment might become rare, except perhaps in posh neighborhoods. This goes against the popular belief that if you accept the Lease Buyback Scheme (LBS), you might end up regretting it when a surprise buyer shows up with a hefty price tag.

Let’s not forget, foreigners can’t buy HDB flats and with our home ownership rate almost touching 90%, most of us will already have a roof over our heads when the time comes.

That could mean a lot of unoccupied flats, potentially leading to a surplus that might stabilize prices in the future.

Now, about those exceptions like flats in prime locations – I think because they’re so conveniently located, a larger number of people might choose to stay put and make use of LBS, rather than sell and shift to a less central location. After all, those who are buying these Prime Location Housing (PLH) flats seem quite content with a 10-year MOP, indicating they’re more than happy to settle down in their super convenient homes for a long haul; maybe even for life.

4. People Are Starting To Realize That Flats May Not Be The Best Heirlooms

So, this leads me to wonder: is it really a disaster if your flat doesn’t significantly boost your kids’ inheritance after using LBS?

Chances are, your children won’t even inherit your flat. By the time most of us hit 65, our kids will probably have their own places. They don’t need another roof over their heads.

And when it comes to the cash from selling your flat, here’s where I throw in a little note:

I’m no financial guru, but I bet if you chat with a few money whizzes, you’ll discover there are smarter ways to beef up your kids’ inheritance. Ways that might even outperform – or surpass – leaving them an HDB flat.

On a basic level, I think older folks in Singapore will come to see that the best thing they can do for their kids is to secure big, healthy retirement payouts for themselves. When your CPF savings look like a phone number and your daily expenses and medical bills are covered, you’re lifting a huge burden off your kids’ shoulders.

In a country where the population is ageing fast, being self-reliant is a massive present to your kids.

(Just to be clear, I’m not saying kids should ignore their parents).

I believe as this understanding spreads, there’ll be less pushback against the idea of using LBS. If the government’s willing to pay, why not let the flat go back earlier?

If you’re hesitant about LBS because you’re worried about “losing your equity value!” or “you can’t back out later!”, consider the other side of the coin.

Are these hypothetical situations worse than the actual challenges of moving, like cost, disruption of routine, and losing familiarity? Selling a beloved flat is pretty much a one-way street too, as you can’t bank on returning to your old neighbourhood (especially at an advanced age).

Give it some thought. And while you’re at it, perhaps the government should consider sweetening the deal a bit. I get that the last part of the lease isn’t worth much, but lifting retirement funds could tip the scales.

Should You Buy, Sell or Wait?

If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?

It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.

I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.

I can help you by:

Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.

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