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I disagree with MoneySmart’s Message on HDB Sale and Leaseback

I recently read an article by credit card site MoneySmart which titled 4 Reasons Singaporean Seniors Should Think Twice Before Participating in the Lease Buyback Scheme.

This is not the only article they have written on HDB’s Sale and Leaseback scheme.

After reading a lot of these articles, I understand that what they are trying to do is provide information on a subject, like I was doing, different perspective, like what I was doing.

There are 4 points that they raised that tells us that WE should think twice about HDB Sale and Leaseback scheme:

  1. The amount that you received might have to go back to your CPF Retirement
  2. You might get a better deal if you hold your property and sell off later
  3. Your property cannot be passed down to your family
  4. There are more attractive options like subletting and downsizing

The points provide food for thought for many near term retirees, but as a coherent post, it breeds more procastination then being actually helpful.

1. This takes the discussion away from a focus on Cash Flow for wealth de-accumulation

The narrative provided by the article focus much along the lines of “think of the deal you are getting”, “what is the most lucrative deal out there”.

While looking for returns is important in wealth accumulation, when it comes to wealth de-accumulation, or withdrawal during retirement, the situation is not so straight forward.

As a retiree, you have to balance between

  1. your expenses
  2. how long your money would last
  3. how much cash flow you will get
  4. the amount of effort you will spend actively managing to gain that cash flow
  5. volatility of that cash flow

The discussion is never only about #3 how much cash flow you will get, the most bang for buck.

In the past, I ventured down this route and realize that sometimes there are financial instruments that offer lower returns but do have a place to diversify your cash flow stream.

Some of them are annuities and cash distributing whole life/endowment policies. They might not work out for my situation, but I believe not everyone would have the same cognitive capabilities to actively manage things at an age of 75 years old.

Products such as these transfer the investment and sequence of return risk to a third party, thus hedging that you will make a big mistake about it.

2. It will be naive to assume a government scheme will not flow through CPF

You may have noticed that every policy that is not private, flows by CPF.

The government will not have it other way.

We can say so much about the conspiracy behind the CPF (thanks Roy Nerng, you deserve a national award for creating a national discussion on the CPF), but as a financial commentator, it is more dangerous putting more lump sum in the hands of the majority of the citizens who are not well equipped to execute a sensible plan to spend down $200,000, not knowing how long you will live.

An annuity acts as a safety net for the government in ensuring that cash flow for basic survival sustenance is met, so that they can focus on controlling the inflation and providing drip subsidies as where required.

Even for someone like myself who are exploring slowing down from work in the 40s, I developed an interest in what an annuity in the 40s can do to help me, or not help me at all.

The function of a perpetual cash flow is very helpful to a lot of people, unless you are pretty sure you won’t live for long.

3. Downsizing is seldom practiced

I been in an age group where we get discussions first hand on the going-on with our parents. If it is a common and ACCEPTABLE practice to downsize, then I would be hearing a lot of “my parent is finding a three room flat because we are getting married and moving out of our places”

The narrative is more of the pressures of providing allowances for the parents rather than the parents moving.

What happens is that we can get very attached to the relationships built up in a place, the convenience around a familiar living environment.

Unless the situation is dire, most people do not considered this.

There is also the monetary figure of downsizing. It might not be lucrative. If you do not want to move away from a nearby vicinity, the difference between a 5 room and 4 room is $60,000 before closing costs, and when you move in to a new place may require some renovations and furnishings.

Lucrative? Perhaps only if you do a geographical arbitrage, downgrading from 5 room to 3 room or a 2 room, or a mixture.

4. Subletting is not without its problems

It is even more rare to hear people renting out a room.

Even if their situation calls for it. The main reason is the lack of privacy.

People usually will have immense reservations about the effort require to sublet, as well as the fear of a problematic tenant.

Would we be able to get cash flow if the situation doesn’t work out or that vacancy is not filled for a month?

For the children, would you be comfortable having your 75 year old parents with declining cognitive minds live with people you are not so familiar with?

5. When do you want to sell off? When you are seriously in dire need of money?

Because that is what some very smart and calculative folks did, when they held on to their terrace houses, or landed properties.

They are asset rich, yet they have not put into context their dire situation when it became clear they do not have a way to monetize and gain cash flow from their lucrative asset.

A single home dwelling as your main retirement asset can be real problematic when you do not have a viable plan.

If you have already made up your mind to be flexible, be willing to explore other living areas, smaller living areas, a different experience, you have no problems.

But life is never so easy. It is not always your own home with yourself or your spouse to answer to.

SEVENTY-YEAR-OLD Wen Zhen counts every cent. He eats two slices of bread for breakfast and lunch each. For dinner, he cooks a vegetable dish, paired with a $2 packet of rice that he ekes out over two nights.

Yet outwardly, the retired quality surveyor – who declined to give his full name – would seem to have no money worries. After all, he lives in landed property.

Home is a single-storey terraced house in Opera Estate in Joo Chiat constituency bought by his late father for $17,000 in the 1960s. The 150 sq m house is in original condition and is dwarfed by swanky three-storey homes, but it is worth $1.6 million.

This resident of a millionaire row gets by on some savings and a monthly allowance of $500 from his son, who lives overseas.

Not only that, but Mr Wen Zhen, who is separated from his wife, says his estranged brother has threatened to sell off the house: “I just hope nobody chases me out, because I will have nowhere else to go.”

Living in a single-storey terraced house on the same estate, and worrying about financial stability in the future, is administrator Dai S. L., 48. She looks after her 75-year-old mother and 80-year-old father, a wheelchair user. Her firm is not doing well and she is afraid of losing her job.

Ms Dai knows downsizing will free up much-needed cash, but says: “There is no option of selling this house as long as both my parents are still alive. This house was bought by my grandfather, and it means a lot to them.” – Asset Rich Cash Poor


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Thursday 9th of June 2016

I volunteered with LionBefrienders and I think old people especially those without descendants should be educated to do Lease buy back scheme They are all into their 70s n 80s and many of them cling on to their only procession Said they can't bear to sell it n worried that they may not have a house over their head Most of them lives in poverty, eat miserably some depended on PA $450 a mth some do not have


Friday 10th of June 2016

Hi Ivy,

Thanks for the sharing. I was wondering if any social worker put it across to them that there is such an option? I guess our fear is that if we failed to cling on to some assets we have we will have nothing left at all if we lose it. Also that no one actually lay it out on a plate for them to see things from a larger perspective

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