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HDB Lease Buyback Scheme and you.

Thursday, July 27, 2017

Reader:

Parents in late 60s considering whether to go for lease buy back on their HDB flat (42 yr old flat) or leave it to children. 

Lease buy back so that parents can increase current monthly pocket money and thus lessen burden. Parents are more inclined to stay in flat.

Though selling entire flat can fully monetise the value of the flat, but given that it is already 42 yr old flat, waiting another 10 to 15 year likely will see a drop in property price in the current peak market condition. Plus Singapore is a developed n aging economy, gone are the days of more 200% price increase in property prices. 

Lease buy back or wait later to sell? 

Your very honest self talk would be much appreciated here, please. 



Watch this video on Lease Buyback Scheme.

AK:
Most old folks don't like moving house. It is quite normal.

If they need some extra pocket money, selling the tail end of their lease (30 years, perhaps) to HDB is a good idea instead of selling the flat outright and moving out.


Don't do this and keep the flat as a legacy for their children? Well, it would mean tightening their belts and burdening their children in the meantime. All for leaving behind a property with a very much shorter remaining lease?


If we are cash rich, no issues. If we are cash poor, cash comes first. 


Asset? That takes a back seat, especially when it is one that is suffering from accelerated lease decay.

Related post:
My HDB flat is 37 years old.

10 comments:

Spur said...

To me, best financially is to sell & move in with children or other relatives. This will maximize cash on hand. But many people nowadays cannot accept. Worst case may be having fallout & having to find alternative accommodation. But I have a couple of neighbours with 3 generation and so far so good. Haha.

2nd best financially is to sell off & move into shorter-lease 2-rm Flexi. Probably will get more cash then lease buyback, if the 2-rm Flexi is in non-mature estate. But at expense of psychological impact & hassle of moving, smaller living space, new environment, new neighbours, distance from children/relatives, etc. Good option for independent-minded seniors or if children already staying in same non-mature estate.

3rd best is Lease Buyback. This is a no brainer if need cash or to reduce burden on children support. There are some financial bloggers who have calculated that HDB actually compensates higher than what is warranted for tail-end of a lease, taking into consideration current market prices & lease decay.

Not utilizing (e.g. rent, or sell, or lease buyback) an old HDB & expecting to leave to children as inheritance is a dumb idea IMO. It's an old, fast depreciating "dime a dozen" asset among a million other similar assets (& increasing). Compounded with Singapore's unique characteristics e.g. tight restrictions on use of CPF for older property; similarly less bank loan availability; hard-nosed govt policies with regard to public property leases and "providing the basics, not facilitating of private wealth".

AK71 said...

Hi Spur,

Thanks for listing other options.

The decision would definitely depend on how averse the old folks are to the idea of moving. If they prefer familiar surroundings, the best option for them is probably the lease buyback scheme.

Definitely, it would be silly to torture themselves financially to keep the status quo.

Darren How said...

Hi Spud,

U mentioned that some financial bloggers who have calculated that HDB actually compensates higher than what is. Mind sharing the link to these articles. Thanks.

AK71 said...

Hi Darren,

This was what a fellow blogger, 15 HWW, had to say:
Lease buyback worthwhile or not?

Darren How said...

Hi AK,

Thanks.

Yan said...

The most viable situation will be to use the Lease Buyback scheme offered by the government. The parents are used to the estate and do not want to leave friends and neighbours that they have known for decades. To downnsize to a smaller flat will mean uprooting themselves and moving off somewhere else and they will have to build their social network again Besides, selling off the old flat and moving to a smaller one will not necessary mean a lot of savings, and may not be worth their while.
The next generation may not be able to keep the flat, as they all will own flats of their own. Selling an older flat with a short least will be more difficult for them, and even if they choose to keep it, the older flat will need a lot of maintenance works, change of fittings and even a complete overhaul. This also means that the older folks have to live with a tighter budget.
Living with your children and their spouses can also be difficult, as there are differences in character, thoughts, views, opinions, behaviour, etc. And if more people cram into a small area, sparks are bound to happen. While the two old folks still have each other and do not require assistance with their physical activities, they should be allowed to stay with each other harmoniously and with dignity.

AK71 said...

Hi Yan,

Thank you for that very thoughtful comment. :)

Spur said...

Explanation below .... in a roundabout way....

https://www.theonlinecitizen.com/2017/04/28/hdb-reply-on-resale-prices-and-hdb-lbs-example-show-resale-buyer-are-not-overpaying/

Actually, since much restrictions placed on lessees after LBS, I'm surprised that nobody KPKB that might as well calculate as selling away the FRONTEND of the lease, instead of the tail-end. Like that can collect more money right?? Of course govt won't want to "waste" money and will say that's unorthodox & not globally practiced.

Below is another blog post, although not about the calculations, but very good in laying out the purpose of Lease Buyback & the target audience. This was in June 2016 ... so before the Lawrence Wong bombshell.

http://investmentmoats.com/uncategorized/disagree-moneysmarts-dangerous-message-hdb-sale-leaseback/

The main issue with LBS is that most of the money goes to top up CPF Life annuity.

So besides not requiring immediate large cash amount, LBS is also more suitable for those with long-lived genes.

That's why LBS requires the remaining lease to cover till at least 95 yrs old.

Darren How said...

Hi AK,

From the article, it seem like lease buyback is the least preferred option. If u are in the same shoe, will u prefer least buyback?

AK71 said...

Hi Darren,

Whether we choose the scheme or not depends on how important it is that we continue staying in the flat and how important an improvement in retirement funding adequacy is to us. ;)

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