The Workers’ Party has recently put out a proposal for a Universal Sale and Lease Back (USB) scheme. Now the government already has a Lease Buyback Scheme (LBS), but this one’s a variant that some of you may feel is better (while the other half of you bang out angry political comments):
What is the USB?
In essence, a scheme to monetise the remaining lease on your HDB flat. Under the Workers’ Party proposal, the USB will be made available to any flat with 30 years of lease remaining. This is provided that no more than 20 per cent of the home loan is outstanding, and the flat owner doesn’t have other properties.
For example, say you have an old flat with 30 years of lease left. You’re also running low on retirement funds, because you spent most of your CPF on housing (maybe someone gave you some bad advice, and told you the price would never go down or something).
Anyway, it’s going to be tough to offload that flat, since most buyers want a home that will last longer than just their own generation; plus there are issues with securing, say, bank loans for such an old property.
So if the USB were around, you could use it to sell your remaining lease back to the government. The compensation you receive will be based on prevailing rental rates at the time (or alternatively, it can be based on another formula pegged to inflation and GDP growth).
The money you’d get from the USB can either come in two ways: a monthly pay out, or a lump sum (but for the lump sum option, you need to pay back the CPF funds you used first; anything in excess of that can come to you in cash).
As for your old flat, the government takes it back and uses it as a rental home, or puts it up for sale for Singaporeans seeking a shorter-lease flat, or in a Sale of Balance Flats (SBF) exercise.
All this sounds pretty familiar, don’t we already have this?
We currently have this in the form of the Lease Buyback Scheme (LBS), but there are some differences. The biggest one is that under the LBS, any proceeds go into your CPF, and you only get any excess in top of your Minimum Sum (MS) – or half of your MS, if there’s more than one owner. In addition, there’s a cap on $100,000 in cash (anything else goes into your CPF also).
In addition, flats must have at least 10 years of lease to qualify for LBS, and the youngest owner must be at least 65 years old. The remaining mortgage on the flat (if there is one) must be $5,000 or less. As with the Workers’ Party proposal, the current scheme also requires that the applicant has no other properties.
Note that it’s impossible to say whether you’d get more money from the existing LBS, or the proposed UBS (LBS compensation is likely to decrease as the flat ages, while the UBS is pegged to changing market conditions in either of its formulas).
But will it work?
The LBS hasn’t been too popular, although the UBS addresses one of the pain points (some Singaporeans don’t like it because of the amount that gets locked back in CPF).
Our belief is that these buyback schemes in general aren’t popular because of mindset issues – Singapore’s elderly worry about housing affordability for their children (they can see how much more expensive it is these days), and want to provide some sort of legacy. On top of that, there’s resistance to moving after you’ve stayed in one place for decades, or feel you’ve spent most of your life paying for the flat.
And then there’s always one subset of our country will see this as being unfair (i.e. those who don’t like more flat options being on the market, as it pushes down already low resale HDB prices).
Overall, it is a more generous and flexible option than the LBS – but without a big shift in the Singaporean mindset, we’re not too sure there will be a bigger take-up rate for this. We’re likely to still see senior citizens putting themselves through hell, out of adamant refusal to lose the flat. And that’s something only outreach and education will change.