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Options available to elderly to monetise their flats

72 per cent of HDB flats owned by residents aged 55 and above are three- and four-room units. This means these seniors have the option to sublet or 'right size' to monetise their flat.

SINGAPORE: About 293,000 HDB flats in Singapore are owned by residents aged 55 and older and 72 per cent of these flats are three- and four-room units. This means these seniors have the option to sublet or 'right size' to monetise their flat.

Selling part of their leaseback to the HDB is another option - for those who have met their CPF drawdown age, which is currently at 63.

Madam Han Siew Lan, 65, has been renting out her four-room flat in Bukit Merah for the last three years. She currently gets about S$2,900 a month. She moved in with her daughter and grandchildren, who live in a five-room flat in the neighbouring block.

Madam Han said: “Each month, I use about S$700 to S$800 for my daily expenses. The rest, I use it to buy insurance or save it. When you are older, you may have more problems, so it is good to save it as standby."

PROS AND CONS OF RENTING/SUBLETTING FLATS

In the second quarter, the median rent for a four-room HDB flat was about S$2,400, according to the Singapore Real Estate Exchange flash report in July. According to HDB, the median rent for a bedroom was S$650 in July.

Mr Eugene Lim, key executive officer at ERA Realty Network, said: “If you have the spare capacity, or you are able to rent out your whole flat, actually it gives you a pretty good return for investment. You would have bought your flat many years ago and so your capital value is very low. So from the current rental that you can get from the HDB, when you rent out the whole flat, it gives you a return of between six and eight per cent. This is very high considering private residential rental returns are only in the bracket of two to perhaps four per cent."

But not all seniors see subletting as an attractive option. Only one in 10 of eligible senior citizens chooses to rent out a room or the whole flat. A previous study showed that reasons cited for not wanting to sublet included privacy and security concerns, not needing the rental income, as well as not having a spare room.

Associate Professor Sing Tien Foo from the Department of Real Estate at the National University of Singapore said: "Subletting very much depends on the rental market and the location. If you are looking at the rental mainly from foreign students and workers in Singapore, they may have a certain preference for location. For example, if it is students from university, they may want to choose rental flats near the university areas or in the western areas. So there could be a difference in terms of demand for some of these rental flats in different locations. Not every area can probably command the same sort of rent."

LEASE BUYBACK SCHEME

So other options to help seniors monetise their flat are available, including the Lease Buyback Scheme. Prime Minister Lee Hsien Loong announced at the National Day Rally that the scheme would be extended to four-room flats. Previously, only those with three-room flats or smaller could apply for the scheme.

Here is how it works. Take for example a couple who have met their CPF drawdown age of 63 and whose flat has a 70-year lease left. A professional valuer determined its market value to be S$323,000. Thirty years of the lease - worth S$185,000 - is retained by the couple. HDB will buy the remaining, tail-end 40 years of the lease for S$138,000.

But how is the value of the 30-year lease determined? According to HDB, the depreciating lease term is taken into account - that is, the value of a flat goes down over time. Restrictions placed on flats under the Lease Buyback Scheme that prevent resale and subletting are also considered.

There have been 797 households who have taken up the scheme since it was introduced in 2009. With plans to extend the scheme to four-room flats, analysts said that while the take-up rate should improve, a large surge is not expected.

Assoc Prof Sing said: "Even though the prices have come down, I think there is still demand in the market and prices still remain pretty stable and strong. So that is also one of the factors that hold back a lot of people's choice or decision to participate in the Lease Buyback Scheme."

Mr Lim noted: "The two main concerns is firstly, your flat will no longer be allowed to be sold in the open market if you want to. If you do not need the flat anymore, you will have to sell it to HDB. Secondly, you will not be able to bequeath your flats to your successor. For example, you can't give it to your children in your will anymore."

Some analysts added that communication about monetisation schemes should be improved and made simpler to understand for seniors, so more can unlock the value of their homes for retirement.