By Romesh Navaratnarajah and Cheryl Tay:

Why more Singaporeans are asset-rich but cash-strapped.

A common gripe amongst many Singaporeans is that they have to spend their savings to pay off home loans and by the time they retire, they find themselves struggling financially as their savings have dried up.

The situation is even more desperate as over 80 percent of Singaporeans live in HDB flats and even though many aren’t high-income earners, they need to pay very high mortgages.

“If an average-income earner buys a new four-room flat, for instance, he may have to pay upwards of S$300,000, while a five-room flat can cost upwards of half a million dollars. By the time he finishes paying his mortgage, he will be close to retirement age and won’t have much left in his CPF (Central Provident Fund),” said 62-year-old retiree David Lim.

Elderly Are Suffering

He added that many retirees and midde-aged Singaporeans find it harder to get jobs and as for younger flat buyers, they will be retired or at least middle-aged by the time they fully pay off their mortgages. Hence, they “will be asset-rich but cash-poor, unless government policies change,” added Lim.

Agreeing with this, property consultant Getty Goh told The PropertyGuru that “it is foreseeable that there could be some issues for Singaporeans who wish to retire in future,” given the high HDB prices.

He was quick to add that the government is rolling out several schemes in aid of “those looking to monetise their HDB flats”. These schemes include the Silver Housing Bonus Scheme and the Lease Buyback Scheme (LBS), which may be used to supplement retirement funds.  

However, Goh is aware that owners’ reluctance to sell their flats could be an impediment to the schemes. Many Singaporeans consider their flats “a home and a lot of sentimental value is attached to it,” which is the main reason why the LBS received a low take-up rate.

Schemes Not Working?

Lim is doubtful if such schemes will address the problem effectively, saying “in theory, this sounds good. But in practice, it’s different”.

“If a five-room flat owner downgrades to a four-room flat, the actual profit is only about S$100,000, given the high prices of HDB flats these days. Average- to low-income earners are likely to have to contribute this amount, as well as the government bonus, to their retirement accounts / CPF minimum sum, which cannot be touched until they reach 55. During the waiting time, they are cash-poor.”

Even if the owner gets access to his retirement funds, he will still remain cash-poor, “because the money will be tied up for the next 10 years while the government places it into an annuity till they are 65, whereby they will receive monthly handouts from it, which do not amount to much,” noted Lim.

As such, he feels an owner will still be asset-rich but cash-poor, whether he takes advantage of the Silver Housing Bonus or not.

Goh believes another reason why the elderly are not keen to downgrade is that they “feel that it is not financially worthwhile to downgrade presently”.

“Even though they are able to fetch a premium for their flats currently, they in turn would have to pay a high price for their replacement flats. Unless there is a cheaper and more attractive housing alternative, response for the Silver Housing Scheme will likely be as lukewarm as the LBS.”

Lim said that “those who are not yet middle- or retirement-aged will also remain asset-rich but cash-poor, unless one is living in a HDB flat left to him by his parents and happens to be a high-income earner, for example”.

What more can be done?

When queried on how this issue could be solved, Goh highlighted the government’s efforts to provide studio apartments for the elderly since 1997, but suggested that the government could do more by “increasing the supply of studio flats for sale and educating the elderly on the financial benefits of downgrading”.

Citing HDB’s annual report, Goh noted that total bookings for studio apartments between 2010 and 2011 reached 1,413, far below the 169,866 economically inactive Singaporeans above 65 years of age, based on Census 2010.

“If we use that as an indication of the magnitude of potential retirees, at a steady rate, the number of new studio flats would have to significantly increase to meet the potential demand,” noted Goh.

“At the end of the day, if the elderly are reluctant to cash-out and insist on holding on to their units, the issue of being asset-rich and cash-poor would still remain unresolved.”


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