CPF insider’s thoughts on Lease buyback scheme

Our CPF insider ES, sent us the following (slight edits with some comments):

Hi, I hope you could expand on my suggestion so that a bigger audience could benefit.

Recent LHL’s NDR speech

He used the case of Mr Tan’s plight of not having enough for his retirement.  Being a scholar (tax payers’ monies to give him a better education) and trying hard to impresse the audience that CPF Life, the Minimum Sum and other schemes that the Government introduced were carefully thought out and hoping that every citizen could have no worries in their retirement.

Lease buyback for 4-room flats?

Of course, all these sounded very impressive but only to those ignorant citizens.  When he said that the Government would extend HDB buy-back lease to those in the 4-room flats (~ 500k units), I was taken aback – it is more of a last resort or a suicide mission.

With no financial prudence, he advised Mr Tan of selling back a portion of his lease back to HDB and that was the reason, the buy-back scheme was extended to 4-room flat.

Let’s look at Mr Tan’s case; $77.5k (half the MS) at 55, what was the best way Government can assist?  Assuming 4% plus an extra 1% per annum on the first $60,000, he will have $122.2k at 65.  The monthly pay-out will be about $600 plus per month (for life).

My suggestion

If the Government is truly caring then they should allow those who reach 55 to have a more meaningful option that they can survive on.

I would recommend that the Government allow those who reach 55 to buy a ‘retirement 2- or 3-room flat’ that they can retire in.  Conditions can be made such as when they pass-on; these flats must be sold back to the HDB.  And other control measures could be set up to prevent misuse.

(Our comment: The problem with the current option of buying a HDB studio apartmentmay not be the only solution because of the uncertainty of the fixed 30-year lease if the family members are still alive, relatively expensive as the 30-year lease studio cost almost as much as a 99-year 2-room flat, too small with only one bedroom (36 or 45 square metres) for those who have other family members, etc)

Now back to Mr Tan’s case; with $77.5k, this should be enough for a ‘retirement 2-room flat’.  He could then let out his 4-room and collect a monthly income of $2.5k and still continue working.

(Our comment: Currently, no one is allowed to own 2 HDB flats. But for the poor elderly, perhaps this option can be explored. After all, the rich has in the past been able to rent out their entire HDB flat whilst staying in a private property. So, instead of reducing the building and supply of HDB flats by saying recently, that demand has been met – perhaps we could consider building more. After all, our CPF was used from the 1960s to build HDB flats when the Government didn’t have the money then, and in a sense, older Singaporeans like Mr Tan sacrificed by receiving a much lower CPF interest rate compared to what the Government earned from our CPF. Moreover, the HDB makes money on every flat that is sold, as about 60% of the price may be charged to land costs).