Lease buyback: A mindset issue

Posted by goldenpeace on 16-Feb-2009
AFTER almost two years in the works, the lease buyback scheme for the elderly will finally kick off on March 1.
It is one of the Housing Board’s most innovative programmes in recent years and its details - unveiled in Parliament recently - affirm what market observers have long perceived about HDB’s role in Singapore society: that it is part of an expanding social support system.
In a nutshell, how it works is that HDB will leave 30 years of a home owner’s lease and buy back the tail-end of that lease at market value.
It will top up this sum with a $10,000 grant, of which $5,000 is given to the home owner as cash upfront and the rest is used to purchase an annuity which makes typical payouts of $500 a month for life to the home owner.
To be eligible, a home owner must be aged 62 and above, own a three-room or smaller flat, have enjoyed only one housing subsidy and have almost paid off his home loan.
And if the owner dies before he lives out the 30 years, a refund of the remaining lease will be paid to his family, in addition to the unused portion of his annuity.
The essence of the scheme is relatively simple, but its implementation will likely be not so straightforward.
For it to take off, there are some concerns that HDB needs to address.
The first - and most important - is that the board will need to change the mindset of the elderly and help them to understand the merits of the scheme.
Interviews conducted with eligible senior citizens last week showed resistance to the idea of giving up one’s property.
Analysts that The Straits Times spoke to anticipate a psychological barrier working against it - the cultural, Asian mindset of owning one’s home.
Property agency chief Mohamed Ismail of PropNex is one who said he expects the initial reception to be lukewarm among senior citizens because ‘it’s an Asian thing to own a property’.
Another property agency director, Mr Eugene Lim from ERA Asia-Pacific, added that old folk like to cling on to their assets: ‘It’s like a security blanket, something they can sell off for emergencies - and a status thing.’
So, for the scheme to be accepted, a lot of work has to be done at the grassroots level to raise awareness.
That HDB is targeting the low-income elderly also means this group is likely to be less educated, and need special attention to understand the intricacies of the scheme - a concern flagged when the scheme was discussed in Parliament.
In particular, HDB should also target this group’s children.
Not being able to leave their flats for their children proved to be a sticking point for many. Yet not every child needs or wants to inherit his parents’ flat.
Enabling parents to be financially independent also goes some way to relieving the children’s financial burden.
Ultimately, if it is the child that parents want to leave the house to, then the child will also be in the best position to persuade them of the scheme’s merits.
Secondly, more flexibility in implementing the scheme could also help it to take off.
One suggestion mentioned in Parliament is to extend the initiative to a wider pool of elderly, such as those who own four-room flats or bigger - since they are just as likely to be ‘asset-rich and cash-poor’.
A growing number of MPs have also requested HDB to expand the scheme to those who had more than one housing subsidy. National Development Minister Mah Bow Tan has said that HDB is open to these ideas down the road.
But expanding the scheme earlier rather than later might help boost the take-up rate and in turn, its popularity among the elderly.
Finally, HDB should consider variations of the scheme. Some analysts have suggested allowing elderly folk to opt for even shorter lease buybacks.
For example, an eligible senior citizen aged 75 might not feel he needs a 30-year lease if he does not expect to live to 105.
He may want to opt for a 20-year lease, and sell a longer lease to the HDB which will in turn grant him a bigger monthly payout. Selling 10 years more of the lease could yield up to 20 per cent more money, said one independent valuer.
Already, some industry observers and elderly folk feel the typical $500 a month payout is not attractive enough given current costs of living.
Other concerns that have emerged include the way that HDB determines the value of the flat, and whether rooms can still be rented out after a resident signs on the scheme.
HDB has since confirmed that owners can still sublet a room even after they opt for the scheme. This implies an income of $500 plus another $300 to $400 on average from rental gains.
The valuation process can also be tweaked.
Currently, HDB values the flat only after a home owner has signed on the dotted line. But feedback has revealed that home owners prefer to have an indication of the valuation before they sign, so that they can do their sums before taking the plunge.
This is a particularly valid concern in a property downturn, because valuations can go down very quickly.
Whatever eventual form it takes, this lease buyback scheme will be vital to Singapore’s society, not least because of the unprecedented ‘age shift’ which Singapore will see.
According to the Committee on Ageing Issues, residents aged 65 years or older will multiply threefold from 300,000 currently to 900,000 in 2030.
By then, one out of every five residents will be a senior - a sobering statistic which explains why it is in HDB’s interest to increase the monetisation options for ‘cash-poor and asset-rich’ Singaporeans in their twilight years.
Furthermore, the scheme will go a long way in relieving the Government’s burden to take care of elderly needs.
Early indications from the ground are that this scheme will be more popular than the reverse mortgage, which allows home owners to borrow against the value of their property. The loan is repayable when the property is sold, usually on the death of the borrower.
This is half the battle won, but a mass effort needs to be mobilised across society to make it successful.
In the months ahead, the board’s ability to fine-tune the rules to meet the concerns of the elderly and their families will be key to the scheme’s success.
Source : Straits Times - 16 Feb 2009