PICTURE THIS. You work hard and save up for the downpayment on an apartment. After 25 or 30 years, you finally pay off your loan, with a combination of money from your Central Provident Fund and monthly income. Then, you reach retirement. This is the time to enjoy the fruits of your labour. Instead, as most of your wealth is in the value of your home, you are asset rich but cash strapped.
The logical thing to do would be to sell your house and move into a cheaper flat, freeing up money to do all those things you want to do, like travel. However, this is easier said than done. It is also something most Singaporeans are not yet prepared to do. A recent study by Ngee Ann Polytechnic shows that about 70% of Singaporeans aged 40 and above would like to stay in their current home after retirement, instead of downsizing or moving to a retirement village.
But like it or not, this is an issue an increasing number of people will have to face as they live longer. Because of a successful public housing scheme by the HDB that has given Singapore one of the highest rates of home ownership in the world, for most Singaporeans, the bulk of their wealth is locked up in the value of their homes.
So far, efforts to monetise property assets have been met with limited success. In 2009, the government introduced a Lease Buyback scheme for HDB flats, which are typically sold on 99-year leases. The scheme is tailored to help low-income elderly households living in three-room and smaller flats to unlock part of their housing equity while continuing to live in their homes.
Owners sell a part of their flat’s lease back to the HDB, leaving them with 30 years. They get $10,000 in cash while the remaining proceeds must go towards purchasing an annuity from the CPF, giving them an income stream for life.
POOR-TAKE-UP
However, response to the Lease Buyback scheme has been poor. In the past three years, 446 households have participated in the scheme, which is less than 2% of eligible households. One reason cited for the low take-up is that many are unclear how the scheme works. Another is that some people are worried about what will happen if they outlive the remaining 30-year lease on their flat. A third deterrent is that the cash payout from the Lease Buyback is small, with most of the money going towards buying the mandated annuity.
At Budget 2012, the government enhanced the Lease Buyback scheme, increasing the cash bonus to up to $20,000 per household. It also introduced a Silver Housing Bonus. Singaporeans aged 55 and above who sell their existing flats and downgrade to a three-room or smaller HDB flat will get a bonus of $15,000 in cash and $5,000 in their CPF accounts.
Broadly speaking, these moves are in the right spirit. However, the schemes essentially incentivise only those with very low incomes or those with very little savings. Middle- income Singaporean households who have enjoyed the comfort of larger HDB flat are unlikely to downgrade to a smaller flat, especially in view of the small sums being offered.
STRONG BEQUEST MOTIVE
Furthermore, there is the very important issue of bequest. The desire to leave something to your children or family members is very strong in Singapore. That can be seen in the way that CPF Life has been restructured, says associate professor Hui Weng Tat of the National University of Singapore. From four schemes, the CPF Life annuity has been streamlined to two. The plan that left members with no opportunity to leave an inheritance was dropped, due presumably to poor response. In other words, when calculating whether to cash out of their homes, Singaporeans will value options that allow them to leave something to the next generation.
And yet, monetising a home goes beyond dollars and cents. For some, there is the intangible issue of loss of face if they move into a cheaper property. For older folks, relocating to a new living environment is particularly hard. They will have to learn where to eat, shop and bank, and how to get about. They will also have to break their existing community ties, which are a significant part of their social capital and are very important for a sense of wellbeing, says Hui.
Cashing out of homes is extra hard for Singaporeans as property has become such an integral part of the nation’s make-up. With 90% of Singaporeans owning the homes they live in, there is a strong attachment to property. Singaporeans see it as a roof over their heads, a route to capital gains, a buffer against inflation, as well as a source of retirement funding. The challenge now is how to turn asset-rich Singaporeans into cash-rich ones.
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