The Lease Buyback Scheme (LBS) is a way that the elderly can monetise their flats if they are living in a 4-room or smaller flat. Through this, the immovable asset will liquidate into a stream of income during retirement years and allow them to continue living in it. In addition, HDB will also provide a bonus of $10,000 to $20,000 depending on CPF top-up.
Thus, a part of the lease on the flat is sold to HDB and owners can choose to retain a part of the lease based on the age of the youngest owner. Thus, this proceeds from the sale of lease will be used to top of the elder’s CPF Retirement Account (RA) and it can be used to purchase a CPF LIFE plan that can provide a monthly income for life.
There are some conditions that need to be met before applying for this.
|Age||All owners must be 65 years or older – pegged to CPF Payout Eligibility Age|
|Citizenship||At least one owner is a Singaporean citizen|
|Income||Gross monthly household income of $12,000 or less|
|Flat Type||4-room flat or smaller as larger flats can be rented out as a whole or by rooms|
|Property Ownership||No concurrent ownership of second property|
|Minimum Occupation Period||All owners have been living in the flat for at least 5 years as this policy is targeted to those who wish to age-in-place|
|Minimum Lease||At least 20 years of lease to sell to HDB so as to unlock meaningful proceeds to meet retirement needs|
|Bonus Break-down||3-room or smaller (either 1 of the 2 listed below):
● $20,000 bonus for $60,000 or more household CPF top-up
● $1 bonus for every $3 top-up
|4-rooms (either 1 of the 2 listed below):
● $10,000 bonus for $60,000 or more household CPF top-up
● $1 bonus for every $6 top-up
Should the property be pledged under the Retirement Sum Scheme, the property is still eligible for this scheme. Owners who have previously enjoyed the Silver Housing Bonus can also apply for this scheme but they would not be given the bonus tied to this scheme as eligible elderly citizens can only enjoy either bonus once.
In addition, should elderly homeowners living in 3-room and 4-room terrace flats want to apply for this scheme, they are unable to do so as these terrace flats are able to fetch a higher resale value as compared to a standard 3-room and 4-room flats.
Thus, they will be able to sell off their existing property and purchase another 3-room or 4-room flats or right-size to a smaller flat and take up on the Silver Housing Bonus if they are eligible.
Moreover, 5-room elderly homeowners are also ineligible as they are able to sublet a room or the whole flat and stay with their families. Alternatively, they are also able to right-size under the Silver Housing Bonus.
The age limit was also set at the CPF Payout Eligibility Age, which will allow scheme participants to enjoy their CPF LIFE monthly payouts immediately from their CPF top-up under this scheme. (It should be noted that it is set to increase to 65 in 2018). Thus, younger households would not be eligible but they are able to sublet rooms or flats for rental income, or right-size to enjoy the Silver Housing Bonus.
To give you a better understanding of the scheme, the following is an example:
- In this scenario, we would be assuming that both husband and wife are Singapore Citizens aged 65, who have satisfied the basic criteria necessary for them to be eligible to apply for the LBS.
- The current market value of their 4-room flat is worth $450,000, and they have decided to keep 30 out of the remaining 65 years of lease, and sell the tail-end 35 years to HDB at a value of $190,000.
|Initial Retirement Account (RA) Balance||$5,000||$20,000|
|Current Age-adjusted Basic Retirement Sum (BRS)
**based on BRS amount in 2018.
|Equal split of cash proceeds||$95,000||$95,000|
|Top-Up required to respective RA||$80,500||$65,500|
|Total cash proceeds||$54,000|
Restrictions to LBS
There are also some restrictions to this scheme, such as premature termination or outliving the lease period.
During the lease period, it is non-transferable in the open market and the whole flat cannot be sublet, only rooms. This is to enable seniors to age in place.
Premature termination of the lease can be done but the flat has to be returned to HDB and a refund for the remaining lease will be done at a prorated basis. In addition, there will be a need to return the amount of CPF funds withdrawn for the purchase of the flats but there is no need for a top-up should it fall short of the required retirement sum. However, the CPF LIFE plan will not be terminated and will continue to provide a lifelong monthly income. Moreover, should there be excess, it can be withdrawn in cash.
Outliving the lease period / passing away during the lease period
Should seniors outlive the lease period, HDB will look at this on a case-by-case basis that is determined based on familial circumstances, health condition of the elder and financial status before arranging a suitable housing arrangement. In addition, 5-year add-ons can be done for up to 35 years.
Alternatively, should seniors pass on, the other occupants living in the flat – spouse or child – will be given the option to live in the flat for the remaining lease period or return the flat to us. If the lease has been prematurely terminated, the remaining value of the lease will be reimbursed to beneficiaries nominated by CPF or to family members according to Singapore’s intestacy law.
Another case to be considered are those who are terminally ill. They will be able to prematurely terminate the lease with refund of unused premium for them. However, this is done on a case-by-case basis.
Despite these, it can be noted that this scheme has been enhanced and that existing owners cannot apply under the revised scheme due to the binding contracts’ terms and conditions.
Topping up home owner’s Retirement Account
With topping up of the homeowner’s RA to be part of the scheme, there is a need to know what this covers.
For topping up, there has to be a minimum of $60,000 of households’ total top-up and keeping up to $100,000 in cash. For those above $100,000 in cash proceeds, the additional will be used to top-up RA to the current Full Retirement Sum (FRS). Thus, owners can receive $100,000 or more.
However, in cases of having nothing to top-up, homeowners can withdraw the whole proceeds but will not be able to receive the bonus from this scheme. In addition, there is a need to purchase the CPF LIFE plan with the RA – unless homeowners are 80 years old and above. Moreover, when talking about net proceeds, there is a need to further check with HDB on the actual value that can be received as this is dependent on the market value.
In the case of pledged properties, it will be redeemed by the corresponding amount of net proceeds and then topped up into the RA of homeowner(s). Thus, any amount received – net proceeds, topping up of RA, etc. – will be split according to ownership shares and each owner are expected to top up CPF RA to specified top-up requirement. This scheme is stricter on the CPF top-ups as homeowners will no longer have a physical asset to sell off and therefore, there is a need to have a reasonable amount in their RA.
Another important point would be the monthly payouts. This is reliant on the owner’s age and their CPF plans – CPF LIFE plan or CPF Retirement Sum Scheme. Thus, those under 80 years of age can: make use of the balance in RA and top-up to buy additional CPF LIFE plan to increase monthly payouts; or have balance in RA and top-up committed to CPF LIFE plan to receive monthly payouts.
However those with less than $60,000 in RA after top-up will not be eligible for CPF LIFE plan. On the other hand, those aged 80 years and above, payouts will be through a stream from RA CPF LIFE or CPF Retirement Sum Scheme. This payment will be received through GIRO.
For those ineligible for CPF LIFE, payouts under the CPF Retirement Sum Scheme can be adjusted if it can last at least 20 years from CPF Payout Eligibility Age of 64 or 5 years from application, whichever ends later. It should be noted that these payouts are not fixed for life and there is no minimum payout guaranteed. This is largely due to the need to adjust for CPF interest rates, mortality rates and investment returns. The table below shows a breakdown of the CPF LIFE plan.
|CPF LIFE Plan||Standard Plan||Basic Plan|
Lastly, should Selective En-Bloc Redevelopment Scheme (SERS) come into play, owners will be reimbursed the proportion of the lease balance of the flat and enjoy rehousing benefits under SERS.
Hence, this scheme allows seniors to age-in-place and liquidate their immovable physical asset into a monthly income stream through the CPF LIFE plan or CPF Retirement Sum Scheme.