Everything you need to know about the Lease Buyback Scheme

Everything you need to know about the Lease Buyback Scheme

NAV TL;DR

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

  • The LBS is one where to monetise your property for retirement
  • The LBS allows you to sell the tail-end of your flat’s lease to HDB and receive an LBS bonus.
  • The proceeds from the LBS will be used to top up your CPF Retirement Account (RA), after which your full RA savings will be used to buy a CPF LIFE plan.
  • Alternatives to the LBS includes rightsizing your flat, selling your property or renting out any extra rooms for an income stream.

When it comes to retirement planning, there’s more to just saving money or investing. The house you own is one great asset that can be monetised in various ways during the golden years. In fact, the Singapore government provides two schemes to help retirees monetise their property for retirement – the Lease Buyback Scheme (LBS) and right-sizing with the Silver Housing Bonus.

When it comes to retirement planning, there’s more to just saving money or investing. The house you own is one great asset that can be monetised in various ways during the golden years.

In fact, the Singapore government provides two schemes to help retirees monetise their property for retirement – the Lease Buyback Scheme (LBS) and right-sizing with the Silver Housing Bonus.

What is the Lease Buyback scheme?

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

Everything you need to know about the Lease Buyback Scheme

The proceeds from selling 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 CPF LIFE, which will provide you with a monthly retirement income for life.

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

For applications received from 1 Jan 2020

Everything you need to know about the Lease Buyback Scheme

The LBS bonus

Once the Basic or Full Retirement Sum is topped up, you get to receive any excess proceeds in cash.

Based on your household and amount of proceeds topped up, your household will also receive the LBS Bonus.

Everything you need to know about the Lease Buyback Scheme

After you have topped up the RA to the specified requirements, you can choose to retain the proceeds in cash, up to a maximum of $100,000 per household. If there is any remaining proceeds, they will have to be used to further top up the respective RAs to the current FRS, before they can retain any balance in cash as well.

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 aged 80 and above.

Eligibility

  • The current eligibility age is 65 years old
  • At least one flat owner must be a Singapore Citizen
  • Gross monthly household income lower than $14,000
  • No second property ownership
  • All owners have been living in the flat for at least 5 years (Minimum Occupation Period)
  • Current flat must have at least 20 years of lease to sell to HDB
  • All HDB flat types are accepted, except short-lease flats, HUDC flats and Executive Condominiums

An example of how the Lease Buyback Scheme works

Mrs Lee is a retiree and lives alone in her 4-room HDB flat. Her 2 children have moved out and her husband has passed on. She has 55 years of lease left on her flat, and since she’s already 65, she decides to sell 30 years of her lease and keep the remaining 25. She receives a total of $150,000 from the Lease Buyback Scheme, including a $10,000 LBS bonus.

However, Mrs Lee will not get to keep all the net proceeds in cash. She needs to use the proceeds to top up her CPF Retirement Account (RA) first before retaining any leftover proceeds in cash.

Since Mrs Lee is the sole owner of the house, she needs to top up to the CPF Full Retirement Sum, which is $181,000. Currently, she has $81,000 in her CPF RA. After topping up her CPF RA, she has about $50,000 in cash proceeds.

Limitations

The LBS is a great scheme to help retirees build up their CPF Retirement Account by monetising their property. However, as with all other types of financial schemes, there are some downsides you’d need to consider:

• You don’t get to keep the full proceeds in cash

Some might expect to receive all the proceeds of the lease buyback in cash. Unfortunately, as mentioned in the above example, you will need to use the proceeds to top your CPF RA first.

Since the FRS keeps increases every year, there is the possibility that you might not even have leftover cash after topping up the RA.

Therefore, unless you already have a substantial amount of funds in your CPF RA, you might not get that much cash proceeds through the LBS.

• You can’t sell your flat once you sign up for the Lease Buyback Scheme

If you decide to use the LBS to monetise your flat, you will not be able to sell your flat anymore even if someone is willing to pay a high price for it. That’s the opportunity cost of the LBS.

Technically, once your sell the remaining lease to HDB, you lose ownership of the flat. This can impact estate planning as it means that the flat will not be left to your family members after the lease you own is up, even if you have family members who wishes to continue living in the flat.

• There’s a possibility of outliving the lease

In the scenario where you outlive the remaining lease, it is unclear what will happen. Although HDB assures that they will not leave you homeless, there is little certainty on the sort of alternative living accommodation that will be provided for you.

Everything you need to know about the Lease Buyback Scheme

Alternatives to LBS

The Lease Buyback Scheme is just 1 way in which you can monetise your property for retirement. There are other alternatives if you feel that the LBS may not benefit you as expected.

Some alternatives include selling your existing HDB in the resale market, especially if you currently own a larger flat which you can then opt to downsize to a smaller one. You can potentially get more from a sale in such circumstances since the HDB valuation of your remaining lease may not be as favourable.

The Silver Housing Bonus (SHB) Scheme is another way you can look at to monetise your home. If you are selling your current flat or private housing with an annual value not exceeding $13,000 and buying a 3-room or smaller flat, you can supplement your retirement income through the Silver Housing Bonus (SHB) scheme.

Another way to monetise your current property is to rent out any spare rooms you have for an income stream. This method presents a lower risk compared to the LBS and may be more attractive if you prefer to receive cash rather than CPF top-ups.

Need help with retirement planning? Check out our step-by-step guide to help you build one to your specs – and achieve financial freedom.

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