The twilight years: Can I still afford a home?

Singapore has one of the speediest aging populations in the world, and while our government takes good measures to ensure its citizens will have sufficient savings to see them through retirement years with the CPF schemes, we can’t help but wonder how our living situation will be like in old age. This is especially true for elderly couples who are asset-rich but cash-poor.

For elderly home owners who are in their 60s now, they would most likely have bought their first HDB flat in the 1980s where the sales price of a new 4-room HDB flat was less than S$100,000. Assuming that both husband and wife had regular incomes, most families in that generation would have managed to pay off their housing loan completely.

According to information released by the Housing & Development Board (HDB), about 290,000 HDB flats are owned by Singaporeans aged 55 and above, with about 80% of these flats fully paid up. Mr and Mrs Lee is one such example.

With their children married and moved out, the elderly couple can either choose to sublet the empty bedrooms, or right-size to a smaller flat for additional retirement income. In addition to these options, the couple can also consider taking up the Lease Buyback Scheme which we will discuss in more details later.

Besides purchasing a smaller resale flat from the open market, Mr & Mrs Lee can also apply for subsided housing from the HDB, if they decided to right-size to a smaller home. Eventually, they decided to move to a studio apartment as it is designed to meet the needs of the elderly with useful fixtures such as non-slip tiles, grab bars and alert alarm systems.

However, it is important to note that studio apartments are sold on 30-year leases only, beginning from the date of key collection, and cannot be rented out or sold in the open market. Moreover, no housing loan will be granted for the purchase of studio apartments, and applicants are required to pay the purchase price in full before taking possession of the flats.

In the event that Mr and Mrs Lee choose to move in with their children or pass away before the lease is up, the HDB will take back the property and pay them a pro-rated sum of the original selling price based on the remaining lease.

The average resale price for a 4-room flat in Serangoon area is around S$500,000, on the other hand, a studio apartment in the mature MacPherson area was priced at S$114,000, according to the HDB’s Build-to-Order exercise in February this year. Therefore, the elderly couple will most likely gain a profit of at least S$300,000 if they sell off their old flat and purchase a studio apartment.

In addition, as they have a gross monthly household income that is less than S$3,000, and no concurrent ownership of second property, they are also eligible for the Silver Housing Bonus (SHB) where they can receive up to S$20,000 in cash bonus per household when they move to a smaller flat, and use a portion of their net sales proceeds* to top up their CPF Retirement Account (RA) and join the CPF LIFE, where they will receive lifelong monthly payout.

In the event they choose to purchase a resale 3-room or 2-room flat, their potential gain will be lesser considering that they demand a much higher price range in the open market. However, when the elderly couple passed away, their children will be able to “inherit” the resale flat, and either buy over and live in it or sell it for monetary gain.

With reference to the same elderly couple, as mentioned earlier, they can also take up the Lease Buyback Scheme (LBS) if they wish to continue living in their 4-room flat and at the same time, monetise their property asset.

Under the recently enhanced Lease Buyback Scheme, Mr and Mrs Lee can sell part of their 4-room flat lease back to the HDB, and choose to retain the length of lease based on the age of the youngest owner. In their case, they can retain either a 35- or 30-year lease and sell the remaining years back to the HDB. HDB will then determine the market value of the flat’s remaining lease based on industry-accepted standards and valuation practice.

For example, they decided to keep a 30-year lease and sell back the remaining 39 years back to the HDB, their sales proceeds will be at least S$200,000. They can then use the money to top up their CPF RA, and use the savings to purchase a CPF LIFE plan. Similar to the SHB scheme, the elderly owners are also eligible for a cash bonus of S$10,000 ($20,000 for 3-room and smaller flats).

It is worth noting that under the Lease Buyback Scheme, the couple can neither sublet the entire flat nor sell it in the open market. They can, however, still rent out the spare rooms for additional income.

If Mr and Mrs Lee were to outlive the 30-year lease of their flat, the HDB would determine the next appropriate housing arrangement for them, based on their financial status, health conditions and other circumstances at that point of time. Nevertheless, if both of them were to die before the lease is up, their children can sell it back to the HDB where they will reimburse the remaining value of the lease to the beneficiaries using a straight-line depreciation.

In general, the LBS was created to provide lower income Singaporeans an option for them to monetize their asset and generate a steady income for retirement (via CPF LIFE). If you and your partner have already paid up your housing loan and met the minimum retirement sum in your CPF RA, then the LBS may not be the best option. This is because your property would most likely gain a higher yield over time in the open market or through rental.

Looking at the various options available for elderly folks and with some proper planning, having a roof over their heads and a steady income in their twilight years is not a far-stretched dream.

* Net sale proceeds = Selling price of existing property less any outstanding loan on existing property, refund to CPF Account, resale levy, deductible of up to $15,000 for ancillary costs, and cash used for purchase of next property.