I refer to the article “HDB unveils ‘income for life’ scheme for the elderly” (ST, Feb
29).
The HDB will pay $87,000 plus a $10,000 government subsidy ($5,000 cash + $92,000 to CPF Life), for the balance 40 years of the lease, on a flat with a 70-year lease.
In a normal reverse mortgage, the cash withdrawals are charged interest like a loan, which is offset against the market value of the home at death.
Using a loan rate of 5 per cent, and a price appreciation of 5 per cent for the HDB flat, the $5,000 initial lump sum, and $500 monthly from age 65 (CPF Life start age) to 92 (end of 30-year lease), will incur a liability of $365,357, and the flat’s $200,000 value would have appreciated to $864,388.
Does this mean that the HDB, in a sense, may stand to gain about $498,731 ($864,388 – $365,357)?
In other countries, a reverse mortgage also typically allows one to stay for as long as one lives, instead of for 30 years.
Why would somone need to pay HDB to extend the lease if he or she is still alive, after 30 years, when the net balance value of the flat is $498,731?
How likely is it for a lower-income Singaporean staying in a 2 or 3-room flat, to be able to afford to pay for the lease extension?
Thus, many may end up losing their homes, and moving to a HDB rental flat and pay rent, which may go against the very reason why they chose the reverse mortgage in the first place – to be able to stay in their own home.
——————
Related posts:
- Uniquely Singapore
- Uniquely Singapore, F1 or F9: Are our ministers also confused by the annuity… erm… Longevity Insurance scheme?
- Uniquely Singapore – F1 or F9: Income statistics?
- Seeing Stars: Uniquely Singapore – Progress
- Budget debate statistics: Uniquely Singapore?
The flats in Bukit Ho Swee have only 53 years more on their lease. Why would their owners sell the last 40 years for $97,000 when they can get up to $200,000 on the open market now?
RH:
1. Thank you Mr LEONG for another genius article that illuminates the mathematics behind the scams, mathematics that most of us cannot fathom thereby leaving us at the mercy of the Scam Masters.
2. It is clear that the HDB flat, in which 86% of Singaporeans live and who take pride in owning their own home, IS A BLACK HOLE MONEY TRAP FOR US AND AN UNENDING GUSHING WELL OF BLACK GOLD FOR THE LIEgime.
3. First, the LIEgime screws us by pricing the typical ~S$30,000 HDB flat [cost of construction, land, facilities, etc] at >S$300,000! Then says we are enjoying a “market subsidy” on each flat!!!
4. Now, the LIEgime comes up with yet another scam to screw us yet again ON THE SAME FLAT to the tune of another ~S$0.5 MILLION!!!!!!!!!! [There are other scams like the SERS EnBloc Scam I have written about in my blog].
5. It is always nice to own the home you live in but this very human weakness is being mercilessly exploited again and again ON THE SAME FLAT in all kinds of scams, all designed to screw us for $hundreds of thousands, even more contemptibly this time because the victims are those least able to understand the scam and who have no other choice, that is, those who have to resort to this arrangement due to being centsless.
6. It is, like always, on these poor suckers’ sufferings that the LIEgime extorts its greatest billions so “it will have more ‘weight’ internationally” like being able for LIE KY LHL to suck up to the Americans by bailing them out, losing our billions in the process. Disgusting.
7. This is the inevitable result of an UNelected govt that holds on to power by stealing elections and stuffing fake PAP ballots. The Malaysian election proves we, too, want change and a more accountable and responsive govt. We are denied that by massive electoral cheating. Dr CHEE is right. We will have to take to the streets to wrest the country back from the Kleptocracy.
PAP is always PAP just like a leopard never change its spot. Always want to exploit public for money and not surprise since all business need to make profit not loss.
PAP = Singapore Inc = Country
This article should be highlighted during the next election.
Has this been in the mainstream newspaper, people may have thinking that government is doing that for good of citizen. They never think that they are sucked for life because they lack the financial skill to see through the scam.
Interesting. But what if the HDB flat appreciates only by say, 3per cent per annum? Would the scheme be fair then?
3% appreciation = $485,452
HDB deviates from its original aim of providing low cost housing for the citizens like its predecessor SIT.Low cost flat at more than $300k? It is a laughing stock
I hope the Singapore Media can be BRAVE for once, and publish the report here. Get you own experts to check the math if you need to. but for the citizen’s sake do something! Make it a front page story! you guys are supposed to be the fourth estate for fuck’s sake..
Thanks. So, even at a modest 3pc appreciation, the HDB would stand to gain. Perhaps they are taking the worst case scenerio
when HDB prices would remain stagnant, in which case, they would be generous. Whatever it is, the HDB must be transparent in its dealings with owners and tell them the assumptions they made in coming up with the sums.
Hey, just want to share. As i was thinking about Malaysia’s elections, I thought of one reason why Senior Lee said that Singapore cant afford opposition.
I think its got to do with “our” sovereign wealth funds. Such things do not survive in a tumultuous political climate which I also think it is one area that democracy is not able to handle well.
It is unlikely a 70 year old 3-room hdb can appreciate to 800K or even 400k when HDB will repossess the flats soon. Also, i’m not sure how appealing a 70 year old HDB will be should HDB decide to extend the 99-year lease and sell the reverse mortgaged flats. Maybe so for the newer HDBs or HUDCs but not the present 30 year old ones.
i agree that the dwellers can fetch 200k in the open market. But that will mean they have to either shift into an old folks home or bunk in with their children to fully benefit from the sale.
I think the liability is only the initial S$5k cash. The rest of the money goes into CPF which GIC/Temasek can use for investments…and its not like the govt can’t print more money if there wasnt enough…as irresponsible as it may seem :-’
The reverse mortgage does look on the low side. Going from the rental point of view, the govt is paying S$241 per month which is in fact low. To build on that, i think rental-by-offspring is what the govt wants to cash in on… perhaps due in part to loss of revenue by the no death-tax law. I noticed the hdb article mentioned “..relocate the flat owner to rental housing”. Perhaps this is a clue as to what hdb intends to do with the flat after the 30 years is up. An early move to control rental prices in the 2nd/3rd generation?
My two cents :) Shh…..i small hum.
My approach follows.
CPF Life, I believe, is an annuity payable for life, as long as you live. And ($5,000 cash + $92,000 to CPF Life) represents the present value of the offer in exchange for lease in excess of 30 years.
Annualised 5% hdb price appreciation over 30 years, across the board, is a speculative assumption on capital gain. Prices deflated, struggled and yet to recover over the last 11 years, and the favourable conditions of the late-80s to mid-90s to escalate prices are no longer available. Looking at opportunity costs would be a definitive approach.
With 5% financing interest rates and 70 years lease balance, anyone who wants to buy his current market value $200,000 flat would have to pay him cash flow equivalents of $10,340 p.a. over 70 years. Meaning, if the owner decides to stay in the flat for next 70 years, his opportunity costs would therefore be $10,340 every year. (Ignoring the opportunity cost of renting out, which could be higher.)
The scheme would buy over his rights to stay in the flat from 31st – 70th year for $97,000 but his opportunity costs remains the same at $10,340 yearly during the period. This opportunity costs would be $41,052 at present value.
NPV is therefore ($97,000 – $41,052).
On the other hand, net opportunity costs ($41,052 less $5,000 cash) with 5% interest rates (to make it simple) and CPF Life annuity of $500 per month, it takes 7.3 years to even off.
So if the owner can live 8 years and more, then he shall benefit from the scheme. (Note also that the family gets pro-rate refund from hdb for the unused lease, if the owner dies before 30 years.)
Thank you.
I do not buy the calculation by Leong Sze Hian. The HDB flat would not appreciate that much as the balanced lease years decline over time, so the residual value of your HDB flat goes down as the flat ages. This is the problem with a 99-year lease asset. The net effect is the same as renting your HDB flat from the government although in name it is called “house ownership” which makes you feel good. This is the same with taxi ‘ownership’ for taxi drivers when by the end of 7 years, the taxi has to be scrapped. But in name the taxi driver owns the taxi and pay monthly instalment for the value of the taxi at the beginning when he took ownership. To me, all these are ‘games’ to control the population by shrewd politicians – social engineering.
This is one sure win-win for HDB and CPF . At 62, your monthly payment already kick in and can draw down your retirement account. Why do we have a scheme to sell back 30 years and hdb hold the money and pay only $530.
What a ripped off !!!!!!! Those who have sign up kenna conned…
Better sell the flat, take the cash and rent…. Prices for HDB will drop like a stone.
I refer to the article “HDB unveils ‘income for life’ scheme for the elderly” (ST, Feb
29).
FEB 29 ???? You mean March 1st
To Leong Sze Hian your sum is incorrest on pricing, valuation, and reverse mortgage
“This is the problem with a 99-year lease asset. The net effect is the same as renting your HDB flat from the government although in name it is called “house ownership” which makes you feel good.”
Yes and no. Depending very much on the remaining lease and the notional NPV of any rental receipts. Assuming the very first old flat was built 1970, the lease will not end till sometime in 2069 which is a good 60 years away, assuming they will not do some magical rent-seeking trick by demolishing your “old-unsightly” block and upgrade you to a better-value “modern” unit which you have to top up any shortfall in the purchase price of your new unit with further $$$$.
*of course, I am assuming that those built sometime in 1970 also have a lease period of 99 years. Anyone cares to correct.
I wish to state that the person posting as Tan KL is not me.