Singapore is one of the richest countries in the world by GDP per capita standards (and also by Crazy Rich Asians standards). Thus, it is natural for Singaporeans to be envied by our neighbouring countries for being rich.
Yet, most Singaporeans can relate to a common problem: Being asset rich and cash poor.
If you’re a Singaporean reaching retirement age, you are worth at least a few hundred thousand thanks to our HDB flat. But here’s the problem. Our HDB flat is an asset and not cash.
To address this problem, the government introduced the lease buyback scheme to help Singaporeans turn our HDB from an asset into cash.
Here’s everything you need to know about the lease buyback scheme and the considerations you need to make when applying for it.
Why was the lease buyback scheme introduced?
For those of you who are living in a private property, your best hope is for developers to en-bloc your property for you to encash. Since en-bloc isn’t really an option for those living in HDB flats, HDB came up with the idea of lease buyback.
This is to allow HDB dwellers to unlock the value in your HDB so that you can safeguard your retirement needs.
Case study: How does the lease buyback scheme work?
Let’s understand how the lease buyback scheme works through a case study. Mr and Mrs Ong are a couple living in a fully paid joint-owned 4-room flat. The flat is worth $550,000 with a 65-year lease remaining.
One day, they decide that they want to keep 30 years of their lease. They intend to sell 35 years of their lease back to HDB.
Based on HDB’s calculation, 35 years of lease is worth $232,000. The lump sum will be split equally between Mr and Mrs Ong. However, this doesn’t mean that both of them will receive $116,000 in cash.
Once the tail-end lease is sold, the proceeds will be used to top up their CPF RA. Both of them need to have at least the Basic Retirement Sum (BRS) in their CPF RA.
If they do not meet the BRS, the proceeds will be used to top up the difference. The cash that Mr and Mrs Ong can receive can be calculated using the following formula.
Cash Proceeds = Lease Buyback Proceeds – Required Top Up To Meet BRS
P.S. You can also choose to do more top-ups to your CPF RA. However, that will mean fewer cash proceeds for you.
Through the lease buyback scheme, you will not get the entire sum in cash. Instead, you will get a sizeable cash amount and a guaranteed monthly payout from CPF LIFE.
Who is eligible for the lease buyback scheme?
The lease buyback scheme is only applicable to those who are living in HDB flats. There are also other eligibility criteria that you need to fulfil.
For starters, you need to have at least 20 years of lease left to sell it back to HDB. Either you or your spouse needs to reach the eligibility age, which is currently set at age 65. You also cannot be in concurrent ownership of more than one property at the point of participation in the lease buyback scheme.
|Age||All owners must have reached the eligibility age (currently set at age 65) or old|
|Citizenship||At least one owner must be a Singapore Citizen|
|Income||Gross monthly household income of $12,000 or less|
|Flat Type||All flat types|
|Property Ownership||No concurrent ownership of second property|
|Minimum Occupation Period||All owners have been living in the flat for at least 5 years|
|Minimum Lease||At least 20 years of lease to sell to HDB|
Previously, the lease buyback scheme was only applicable to those who are living in 4-room or smaller flats.
Recently, Minister of National Development Lawrence Wong announced that the scheme will be expanded to all flat sizes. Thus, every Singaporean who owns an HDB will now have the choice to take part in the lease buyback scheme.
How many years of the lease can you sell to HDB in the lease buyback scheme?
The number of years you can sell to HDB is dependent on the age of the younger owner between you and your spouse.
You need to retain a minimum number of years of the lease that ensures either of you can live in the flat till age 95.
|Age of youngest owner||Lease Retained (minimum)||Your Options (years to sell back)|
|Eligibility Age (currently 65-69)||30||35|
|75-79||20||25, 30, 35|
|80 and above||15||20, 25, 30 , 35|
Who is the lease buyback scheme targeted at?
When the lease buyback scheme was first introduced, there are two groups that were targeted.
Firstly, it was targeted at those who are having trouble with retirement savings. In particular, the government wanted to help the group of Singaporeans who are asset rich and cash poor. These people are living in HDBs worth a few hundred thousand but do not have enough cash flow to sustain their day-to-day lifestyle.
Secondly, it was targeted at Singaporeans who feel that there is no point holding onto an asset beyond your lifespan. You’d rather “encash” your hard-earned money locked up in your HDB and spend it in your retirement days, e.g. going for long holiday trips.
See more: Types of housing in Singapore