Lease buyback or rightsizing?

If you don’t have time to read through the whole article, you can check out our short version below.

• The Lease Buyback Scheme (LBS) aims to help you to monetise your flat to receive a monthly income in your retirement years while living in your own flat.
• The Silver Housing Bonus (SHB) aims to help lower-income elderly supplement their retirement income by using a cash bonus of up to $20,000 as an incentive.
• Examples of how SHB and LBS works

Your property is an important asset that you can monetise for retirement. There are a few ways in which you can monetise your property for your golden years. Let’s take a look at 2 different ways – the Lease Buyback scheme (LBS) and rightsizing using the Silver Housing Bonus (SHB)

Lease Buyback Scheme

The LBS aims to help you to monetise your flat to receive a monthly income in your retirement years while living in your own flat.

The scheme allows you to sell a portion of your flat’s lease to HDB and receive an LBS bonus. You can choose to retain the length of the lease based on the age of the youngest owner.

The proceeds that you will be receiving from selling a part of your flat’s lease will be used to top up your CPF Retirement Account (RA). The CPF RA savings can be used to join the national annuity scheme CPF LIFE, which will provide you with a monthly retirement income for life.

For households that have only 1 owner, he or she will have to use the proceeds to top up the RA to the current age-adjusted Full Retirement Sum (FRS).

For households that have 2 or more owners, each owner will have to use his or her share of the proceeds to top up his/ her RA to the current age-adjusted Basic Retirement Sum (BRS).

How to determine the LBS Bonus

If the total top up to the flat owner’s RA is $60,000 and above, your household will be entitled to the full bonus.

If it falls below $60,000, you will receive a pro-rated bonus.

After you have topped up the RA in accordance to the specified requirements, you can opt to retain the proceeds in cash, up to a maximum of $100,000 per household.

If there are any remaining proceeds, the flat owners will have to use their share of the remaining proceeds to top up their respective RAs to the current FRS, before they can retain any balance in cash.

CPF LIFE

Your full RA savings will be used to buy a CPF LIFE plan if you have at least $60,000 in your RA after the top-up. You will not be eligible to join CPF LIFE if you are 80 years old and above. You can read more about the LBS here.

Right-sizing with Silver Housing Bonus

The SHB aims to help lower-income elderly supplement their retirement income by using a cash bonus of up to $20,000 as an incentive.

This is to encourage senior households to downsize to a smaller HDB flat by purchasing from either HDB or the resale market while putting a specific sum of their cash proceeds from the sales of their existing flat into their CPF RA.

Eligibility Criteria

• At least one of the owners must be 55 years old and above
• At least one of the flat owners must be a Singapore Citizen
• Gross monthly household income must be within $14,000
• Owns an HDB flat for at least 5 years ((Minimum Occupation Period) for resale or a private housing having an annual value of $13,000 and below
• Does not own a second property
• Eligible to purchase a 3-room HDB flat (excluding 3-room terrace) or smaller flat from HDB or from the resale market
• Purchase price must be lesser than selling price of the current/last sold property
• Booking of new HDB flat or application to buy resale flat must be before sale of current property or within 12 months of completing sale of existing property
• Application must be submitted within one year from date of completion of the second housing transaction (sale of purchase)

Required Top up amount

In order to be eligible for SHB, each senior household is required to top up $60,000 of their proceeds from the flat sold into their CPF RA and join CPF LIFE.

The top-up amount required will depends on the proceeds which is capped at $60,000.

You are eligible for the cash bonus of maximum $30,000 if you top-up $60,000 to your CPF RA.

However, if the top-up amount is less than $60,000, you will receive a pro-rated cash bonus based on a 1:2 ratio, i.e. $1 cash bonus for every $2 top-up made.

An example of how the SHB works:

First Scenario: if you top up $60,000 to your CPF RA (Full Cash Bonus)

Mr and Mrs Lee are selling their 5-room flat in Khatib and are planning to buy a 2-room Flexi BTO flat in Woodlands. Based on their proceeds, they are required to top up $60,000 to their CPF RA and join CPF LIFE.

As they have to top up $60,000 to their CPF RA, they get to enjoy a bonus of $30,000.

Second Scenario: if you top up less than $60,000 to your CPF RA (Partial Cash Bonus)

Mr and Mrs Neo are selling their 4-room flat in Bukit Batok and are planning to buy a 3-room resale flat in Simei. Based on their proceeds, they are required to top up $35,000 to their CPF RA and join CPF LIFE.

As they topped up less than $60,000 to their CPF RA, they get to enjoy a pro-rated SHB of $17,500.

Pros

1. Higher price from selling your flat

• Able to get a better deal for your flat depending on market condition at time of sale

2. Flat ownership is yours

• Unlike the LBS the ownership of the flat will still be yours

3. Silver Housing Bonus (SHB)

• You will get to enjoy the SHB depending on how much you top up
• If you were to top up the maximum which is capped at $60,000, you are eligible for a maximum of $30,000 cash bonus.
• However, if you top up less than $60,000, you will receive a pro-rated cash bonus based on a 1:2 ratio, i.e. $1 cash bonus for every $2 top-up made.   

Cons

1. You must sell your current flat and downsize

• Which means you won’t be able to stay in your current flat

2. Might face a negative sale of house

• Depending on the market condition, selling your house at the wrong timing might lead to a negative sale proceeds

How does the SHB support your retirement?

The SHB is suitable for Singapore Citizens who own a large HDB flat that they no longer need and for those who have insufficient retirement income.

Not only will SHB provide them with a flat with lower expenses, it can also serve as an additional income for them.

What is the difference between the LBS and the SHB?

The LBS allows flat owners aged 65 and above to stay in their homes and sell a portion of their remaining leases to HDB.

For the SHB, it allows flat owners aged 55 and above to receive a bonus for down-sizing to a smaller flat and contributing the proceeds towards their retirement.

In a nutshell, if you are someone who still wants to stay in your own flat and receive a monthly income for your retirement and is not planning to will your flat to your children, the LBS could be a better choice.

However, if you are someone who don’t mind down-sizing to a smaller flat while receiving a monthly income and wish to will your flat to your children, the SHB would suit you better.

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