Singapore has one of the highest home ownership percentages in the world – 88% in 2020. One of the key reasons is that the majority of the residential properties are public housing and are priced affordably for home owners.
The Retiree’s Dilemma: asset-rich and cash-poor
Although most home owners feel more secured to have their own roof over their heads, not many realize that this also means the value locked in the homes could not be easily utilised when retirement arrives. This creates an asset-rich and cash-poor situation – we still need a place to stay when we retire but we also need cash to meet our living expenses when we lose our working income.
According to the CPF Trends statistics in 2020, about 54% of the CPF members aged 55 were able to meet the Basic Retirement Sum. That is to say half of the cohort didn’t meet the retirement amount!
This is an indication that many are facing cash-poor situation in retirement.
4 ways to get cash from your property, without selling it
If you or someone close to you is facing an asset-rich and cash-poor situation in retirement, I have four solutions to extract cash from your existing property while still retaining the ownership of your house.
1) Rent out extra rooms
Getting more cash by renting out rooms in your house would be the quickest and fuss-free way of generating income from your property. Other solutions discussed in subsequent sections will involve lengthier administrative procedures or even the need to sell your house and move to another place.
How much can you rent your extra room for?
According to Carousell Property’s compilation, a HDB common room can be rented out for $490 to $780 while a HDB master room would fetch between $730 and $1170.
But you won’t be able to pocket every single cent of the rental income. There are costs to renting out room(s) in Singapore:
- Agent commission: usually 1 month of rent
- Additional utility costs due to more usage
- Repairs and maintenance
You can rent out 1 room for a 3-room flat or a maximum of 2 rooms for a 4-room flat and bigger. Hence, you can squeeze more income from your property if you can rent out 2 rooms, if you are comfortable with more tenants sharing your place.
I know, you might not feel comfortable having other people invading your privacy. It is difficult not to observe some undesirable traits or living habits of your tenants when you have to live with them. And it doesn’t help when you hear horror stories about tenants.
If sharing your living space with tenants is not your cup of tea, you can consider the next few solutions.
2) Downgrading to a 2-Room Flexi Flat with shorter leases (55 and above)
Your children have grown up and have moved out, they now have their own lives, in their own houses. You might find yourself living in a 4-room or 5-room flat with your spouse. This could lead to empty nest syndrome where your house suddenly feels empty at times.
This is when you can choose to downgrade your flat to a smaller one and use the proceeds for retirement.
Silver Housing Bonus for Seniors in Singapore
The government has made it more attractive for you to downgrade by introducing the Silver Housing Bonus where you get an additional cash bonus of up to $30,000.
The calculation of the proceeds can be complicated because it depends on your situation:
- did you use CPF to pay for the house downpayment and mortgage?
- did you take any housing grants?
- what’s the amount of resale levy that could be incurred?
Basically, the proceeds might be lower than what you might expect. Hence, it is important to run through the sums before committing to selling your flat and downgrade.
How much cash can you get from Silver Housing Bonus?
Let’s walk through the sale of a hypothetical HDB flat example:
- Sale proceeds = $540,000
- Remaining HDB loan -$100,000
- CPF loan + accrued interest -$280,000 (to CPF)
- HDB housing grant + accrued interest -$80,000 (to CPF)
- Agent commission -$10,800
- Admin and legal fees -$200
- Proceeds in cash = $69,000
Both you and your spouse would end up with $69,000 in cash and $360,000 in the CPF accounts. Don’t forget you would then need to purchase a smaller property. The proceeds would be used up and you would be back to square one: asset-rich cash-poor.
Moreover, you might not be able to qualify for a housing loan or might have to repay a larger sum due to a shorter loan tenure. That would worsen your cash flow situation.
Hence, the best way is NOT to buy another resale from the open market but to go for the 2-room Flexi Scheme offered by HDB. Both of you should not earn more than $14,000 a month, not an issue if you are already retired.
Even if you have used up the two chances of buying flats directly from HDB with housing grants, you would still be able to apply for 2-room Flexi flat (provided you have not purchased a Studio Apartment or short-lease 2-room Flexi flat previously).
These 2-room Flexi flats have shorter lease options if you are aged 55 and above. You can choose among 15, 20, 25, 30, 35, 40 or 45-year lease. One caveat is that the chosen lease must be able to last you or your spouse until at least age 95, which means you’ll need to opt for minimally 35-year lease if you are 60 years old.
If it is not obvious already, the cost of the flat is cheaper with shorter leases.
Cost of a 2-Room Flexi Flat
Here’s a table of the indicative price range for 2-Room Flexi flats:
As you can see, these flats are pretty affordable after you downgrade from a bigger flat. Of course, it depends on your situation and hence please do your calculations and not take this example as your reality.
The bad news is that you cannot take a housing loan to pay for 2-Room Flexi. But you can use funds from your CPF OA to pay it in full.
Following up on the calculation above, there would be $360,000 in your CPF. Assuming you and your spouse have to set aside $83,000 each as Basic Retirement Sum for your cohort, both of you would still be left with $194,000 (assuming all in CPF OA) to purchase your 2-Room Flexi.
Let’s say you choose a 45-year lease at MacPherson Weave, you would need around $126,000 to pay for the 2-Room Flexi flat. Both of you and your spouse would share the surplus of $68,000 in your CPF OA and could consider doing a top up to your RA. In this way, you can get higher payouts from CPF and improve your cash flow during retirement.
In summary, you can consider downgrading your house to 2-Room Flexi. The benefits are:
- you get to move in a new house that is more rightly sized with a shorter lease
- you get to draw a higher monthly payout from age 65 because you now have more funds in your CPF
- you get some cold hard cash from the sale of your flat to boost your cash buffer
- you get even more cash of up to $30,000 under the Silver Housing Bonus if you do a CPF RA top up
You can check the full eligibility criteria for 2-Room Flexi on HDB website, and you can learn how to apply for Silver Housing Bonus here.
3) Lease Buyback Scheme (65 and above in public housing)
What if you love your current HDB flat so much that you can’t bear to sell it but still need the cash flow? In this case, you can consider the Lease Buyback Scheme (LBS) whereby you can sell part of the lease to HDB and increase the amount of your CPF monthly payouts.
There is a limit to how much lease you can sell. The rule-of-thumb is that you need to maintain a lease until the youngest buyer is 95 years old. For example, your flat has a remaining lease of 69 years and you and your spouse are aged 65, you need to retain at least 30 years of lease and could sell 39 years of lease back to HDB.
How much cash can you get from Lease Buyback Scheme?
The value of the lease would be dependent on the valuation of the HDB flat but here’s an example from HDB to give you a sense of how much you would get selling part of the lease away:
- Balance lease: 65 years
- Market value: $520,000
- No outstanding loan
- Choose to keep a 30-year lease
- Sell the tail-end 35-year lease to HDB for $219,300 (because depreciation isn’t linear)
That is a pretty substantial amount of funds freed up from your property.
Before you rejoice, remember that you are not going to get this full amount in cash. You and your spouse will need to top up both your CPF RA to the Basic Retirement Sum amount (amount dependent on your age cohort) before the surplus can be withdrawn as cash.
If you top up at least $60,000 into your CPF RA, you will receive LBS cash bonuses of:
- $30,000 for 3-room or smaller flat, or
- $15,000 for 4-room flat, or
- $7,500 for 5-room or bigger flat to HDB.
You will still enjoy pro-rated LBS cash bonuses if you top up below $60,000 into your CPF RA.
It is clear that the government wants to incentivise you to take up this so that you have enough cash flow to spend during your golden years.
Your full CPF RA would then be used to buy a CPF LIFE plan to give you monthly payout until you pass away.
4 key criteria for Lease Buyback Scheme
Do refer to HDB website for the full criteria, but take note of these 4:
- Applicants are aged 65 and above
- Household income of $14,000 or less
- Owners living in the flat for more than 5 years
- At least 20 years of lease remaining
2 concerns about the Lease Buyback Scheme
Besides these criteria, you must also know about some other conditions after you have completed the LBS procedure.
The most important condition is that you will not be able to sell the flat on the open market or rent out the whole flat. You have to return the flat to HDB and receive a refund for the remaining lease should you terminate it prematurely.
Another major concern is that you may outlive the lease of your flat. HDB assured LBS adopters will not be left homeless and will make housing arrangements depending on your family circumstances.
In summary, the benefits of LBS include:
- staying at the same house
- receive cash proceeds after selling the lease and topping up your CPF RA to the required amount
- receive LBS cash bonus of up to $30,000
- receive higher CPF monthly payout via CPF LIFE
4) Reverse Mortgage (for Singaporeans with private housing)
Reverse mortgage is a solution that is only applicable for Singaporeans who have private properties.
This is different from refinancing and taking out an equity loan from your house. For an equity loan, you receive a lump sum of cash but would still need to repay the mortgage on a regular basis. That’s not what you want if improving cash flow is your key objective during old age.
What is a Reverse Mortage?
Instead, reverse mortgage works by giving you a loan to top up your CPF RA so that you receive the desired amount of CPF LIFE payout per month. There will not be any loan repayments and the interest is accrued and payable at loan maturity.
DBS launched the Home Equity Income Loan in Aug 2021. It is the first of its kind reverse mortgage in Singapore, featuring a tie-up with CPF LIFE. DBS gave the following example:
To qualify for the Home Equity Income Loan, here are some conditions:
- age between 65 and 79 years old inclusive
- owns and stays in a private residential property that is fully paid
- owns no other property
- remaining lease of the property at the end of the loan period must be at least 30 years
Can you do a reverse mortgage with HDB in Singapore?
No. At the point of writing, reverse mortgage is only available for private property owners. If you own a HDB flat, you should consider the Lease Buyback Scheme mentioned above instead.
Major downside to using reverse mortgage
As there is no regular repayment of the mortgage, keep in mind that the amount together with the accrued interest can snowball into a big sum at loan maturity. And the property market may be bearish such that you cannot fetch a good price when you sell your house.
If the proceeds are insufficient to repay the loan, you would have to pay the difference, out of pocket. This is one big risk you have to take on when you opt for this loan.
Otherwise, the benefits of this Home Equity Income Loan are
- you get to stay in the same property
- you receive higher CPF monthly payout
- you do not need to make mortgage repayment until the loan maturity and you can use the proceeds from the sale of the house for repayment
You can improve your cash flow using your property, while having a roof over your head!
Singapore faces an ageing population and some seniors may have to confront an asset-rich and cash-poor situation. But this problem is solvable and I have highlighted 4 solutions to help you free up cash from your home.
I think the first choice would be to rent out extra rooms to earn a stream of income because this is a relatively easy solution compared to the others. That is if you can accept staying with tenants under the same roof.
If not, you can consider downgrading to a smaller flat, especially the 2-Room Flexi. Depending on your situation, you should be able to get some cash proceeds and even receive a cash bonus for downgrading. The downside is that you don’t get to stay at the same house and have to move. This is the most logistically challenging option.
If you prefer to stay in the same flat, you can consider the Lease Buyback Scheme (LBS) which lets you sell part of the remaining lease to HDB. If your circumstances permit, you would be able to receive cash proceeds, LBS cash bonus, as well as increased CPF LIFE payouts.
But LBS isn’t available for private property owners in Singapore. Instead, you would have to consider DBS’ reverse mortgage Home Equity Income Loan to receive higher CPF LIFE payouts.
It is a good thing that there are several options where you can monetise your homes and there isn’t a one size fits all solution. Evaluate your situation and preferences to see which option works for you best!
Let me know if you have more questions so I can improve and update this post further.
