Lease buy-back for elderly from March

Eligible home owners urged to seriously consider the scheme.

STARTING from March 1, elderly folk can apply to the Housing Board to unlock the value of their homes for cash - while continuing to live in the flats.

Full details of the long-awaited ‘lease buy-back scheme’ were unveiled by National Development Minister Mah Bow Tan in Parliament yesterday.

The initiative, designed to allow the elderly to obtain cash for living expenses by drawing value from their homes, was first announced by Prime Minister Lee Hsien Loong at the 2007 National Day Rally.

Mr Mah yesterday strongly urged eligible home owners - those 62 and above - to sign on: ‘It is a good and generous scheme and I would like to urge MPs…to explain this scheme to their residents.’

He also stressed that HDB flats were not for ’speculation, or quick profit’.

The lease buy-back scheme reflects this point by recognising that home owners will be in a position to unlock the value of flats when they grow old, he added.

For retirees like 69-year-old Teng Kiat Hwa, who owns a three-room HDB flat in Toa Payoh, this scheme is a serious option. He fell ill years ago and stopped driving a taxi. He has had no income for at least five years and medical bills have depleted his CPF money.

If he signs on, he will be able to sell part of his flat’s lease to the HDB, receive cash upfront of $5,000 and a monthly annuity payout of $500.

This is how it works: HDB will buy back the tail-end of a flat’s lease at market valuation, leaving a 30-year lease for the household.

So, for example, if a flat has a remaining lease of 70 years, HDB buys 40 years of the lease from the flat owner. It pays market rate for the lease it buys and this money goes to a new CPF Life annuity in the flat owner’s name.

In addition, HDB will give the applicant a $10,000 grant. He will get $5,000 cash upfront, and the other $5,000 goes into the CPF Life plan.

The payout is enough to give a typical flat owner about $500 monthly for life. At the end of 30 years, the flat’s ownership is transferred to HDB.

Mr Mah yesterday also allayed concerns from MPs such as Dr Muhammad Faishal Ibrahim (Marine Parade GRC) on what happens if the flat owner dies before the 30 years is up.

In this case, his family can either choose to live in that flat or get a pro-rated refund from the HDB.
In addition, his family will be given the full refund of the undrawn premium from the annuity plan, said Mr Mah.

If the owner outlives the 30-year lease, the HDB may extend the lease or find them alternative accommodation, added Mr Mah.

This scheme is currently only for those aged 62 and above and who own two- or three-room HDB flats. About 25,000 low-income households in Singapore will be eligible.

Mr Masagos Zulkifli (Tampines GRC) raised the question of whether it could be expanded to include elderly folk who own four-room flats.

Let us wait, said Mr Mah, until the scheme is rolled out and public response and feedback has been gathered.

‘But I am open to options of extending the scheme,’ he said.

Speaking to The Straits Times, Mr Teng said he would ’seriously consider’ the option now.

His son Teng Kang Cheng, 41, said it was a ‘good idea’ but was concerned that the flat could not be left to the next generation.

‘We have to discuss and weigh the options now,’ he said.

There is also the issue of conveying the details of the scheme to elderly folk who are Mandarin speakers like the elder Mr Teng.

This point was brought up by Madam Ho Geok Choo (West Coast GRC), who asked if HDB had any plans to raise awareness of the scheme.

Mr Mah said that there will be a ‘major launch’ for the initiative.

‘We will involve all the advisers, especially those who have larger numbers of senior citizens in their constituencies in this exercise,’ he said.

Unlocking the value of flat: How it works

HERE is an example of how the scheme will work. Take a three-room flat with 70 years left on the lease, with a market value of $236,000.

1. Flat owner sells the Housing Board 40 years of the lease, and continues to live in the flat under the remaining 30-year lease.
2. HDB buys the 40-year lease at $104,000, a figure calculated by an industry valuer. In addition, it gives the flat owner an additional $10,000 grant.
3. Of this total value, flat owner gets $5,000 as cash upfront. The rest goes to buy a new CPF Life annuity for the flat owner.
4. He gets about $500 monthly for life.

If the flat owner dies before the 30 years is up, his family:

• can choose to live in that flat
• or get a pro-rated refund from the HDB
• will be given the full refund of the undrawn premium from the annuity plan.For example, if $100,000 was used from the sale of the flat to purchase the annuity plan and the owner dies after receiving $10,000, his family will be given the remaining $90,000.

If the flat owner outlives the 30-year lease, HDB may extend the lease or find alternative accommodation for him.

Conditions:

• own three-room or smaller flat
• outstanding loan is $5,000 or less
• owner is 62 years or older
• household income of $3,000 or less
• owner has not previously owned a four-room or larger flat, or private property
• owner has received only one housing subsidy
• has owned existing flat for five years or more

Source: Straits Times - 7 Feb 2009