Unlock the value of your home

Here are some ways to get real spending money out of your property
By Magdalen Ng, The Sunday Times, 14 Apr 2013

Cashing in your fixed assets to make retirement a bit easier is a logical step but somehow property has wormed its way into a special place in our hearts and we just can't bear to let it go.

Call it perverse perhaps, but most Singaporeans would rather hold on to their real estate and live - or scrape by on - an asset-rich but cash-poor life.

Yet there are schemes that can turn the value of their homes into real spending money.

For example, reverse mortgages allow home owners to convert the savings locked up in their houses into a steady stream of income.

Reverse mortgages, which NTUC Income and OCBC Bank used to offer a few years back, met with such cool demand that both institutions have canned them.

Instead of a regular loan where the property owner pays a monthly instalment to the bank, reverse mortgages involve the financial institution paying the borrower. It is akin to a line of credit and provides a regular income stream. The main reason senior citizens shunned them is that on the mortgagor's death, the property will be sold by the bank for the deceased's estate so the parents could not bequeath it to their children.

But there are other programmes around, some offering juicy cash bonuses from the Housing Board, others involving banks, with the aim of letting people use some of the capital that has built up in their homes and now sits idle.

Mr Ong Lean Wan, chief executive of financial advisory Life Planning Association, noted that any decision to do with property is an "emotional one".

"It is not easy to advise them on what to do. Also, what if they sell now, and prices increase in the next three to five years? What would they feel about missing out on $50,000 or $100,000?" he said.

"For those who are really short of cash, this will probably be a good idea, but they just have to make sure that they do not regret their choices."

If you are open to the idea of turning your home into a cash generator during retirement or are just keen to transform bricks and mortar into dollars and cents, check out some of the options here:

Subletting

If you have extra rooms in your home, sublet.

Depending on your location and the size of the rooms, you will be able to earn at least a few hundred dollars a month.

People who have the luxury of living with their children can sublet their entire apartment and reap some serious money.

R'ST director Ong Kah Seng said this is the most straightforward way to monetise a home but he added that sustaining the income stream over the years may be challenging.

"The elderly have to select tenants who are suitable, based on criteria such as security and lifestyle," he said.

When the lease expires or the tenant leaves, he said, the owners will have to find another person to rent so it may not be as "secure" an income stream.

He added: "The elderly who do not urgently need a large sum at disposal will find this very flexible. Those who are very open-minded and enjoy interactions may enjoy this option, and may encounter fewer issues with tenants who come from different backgrounds or lifestyles."

Rent for a three-room flat in Clementi is at least $2,000 a month and about $4,250 for a three-bedroom, 1,200 sq ft condominium at Kovan.

However, for HDB dwellers, there are certain rules on subletting the whole flat or renting out a room.

For example, owners who wish to sublet their entire flat have to meet a three-year or five-year minimum occupation period, depending on whether the flat is subsidised and when it was bought. HDB approval is also necessary.

Only owners of three-room or bigger flats can sublet bedrooms. While prior approval from HDB is not required, owners have to register with the Housing Board within seven days of subletting the rooms.

They must also notify it when they renew or terminate the subletting arrangement for example.

Downsizing

Significant sums of money can be tapped if elderly home owners sell up and downgrade to smaller apartments.

For example, a 1,346 sq ft unit in Springdale condominium sold for $1.45 million in May, while a 1,130 sq ft unit in the same development went for $1.15 million in the same month.

If you had sold your bigger unit and managed to buy a smaller apartment in the same estate, you would have monetised about $300,000. However, you would have to deduct the conveyancing and other necessary administrative fees. Still, the money can go a long way in boosting retirement income, if it is put to good use.

Mr Lee Sze Teck, DWG's senior manager of training, research and consultancy, added that this means these people would need to get used to a smaller living space.

Silver Housing Bonus

This cash incentive is aimed at encouraging those over 55 to downgrade their homes to buy three-room or smaller HDB flats.

The bonus cash carrot can go as high as $20,000 if they use some of the net sales proceeds to top up their CPF Retirement Account and enter the CPF Life annuity scheme.

The net sales proceeds will first have to be used to top up the Retirement Accounts of all owners to the prevailing Minimum Sum. The excess can be kept in cash.

Who is eligible?

At least one owner has to be a Singapore citizen aged 55 or above and the gross monthly household income should be $3,000 or less. Those living in HDB flats have to meet the minimum occupation period for resale. Those who live in private properties cannot have their property's annual value exceed $13,000.

The owners cannot have a second property.

Additionally, the property they are buying has to be a three-room or smaller flat or a studio apartment. They must also book a new HDB flat or studio apartment, or apply to buy a resale flat, before selling the existing property or within six months of completing the sale of the existing property.

Those who are interested in applying for the Silver Housing Bonus can get the application forms at the HDB and the CPF Board.

Lease Buyback

This is a subsidised scheme targeting lower-income elderly households, which allows HDB residents in three-room or smaller flats to monetise their flats to supplement their retirement needs.

Mr Lee noted that one disadvantage as opposed to downsizing and moving into a studio apartment designed for the elderly may be that the fittings in the existing home might not be elder-friendly.

The Government is offering a cash bonus of up to $20,000.

Eligible residents retain a 30-year lease on their flats and sell whatever remains of their 99-year lease back to the HDB.

For instance, if a flat has 65 years left on the lease, the HDB will buy 34 years of the lease at market rate, and the owner can live in the flat for the next 30 years.

Any outstanding loans and deductibles incurred, such as administrative fees, will be withheld from the total proceeds.

All the owners in the household will have to use their share of the net proceeds to top up their CPF Retirement Accounts to the Minimum Sum.

For the full $20,000 cash bonus, the household's total top-up must be at least $60,000. If it is less than $60,000, they will get a pro-rated cash bonus of $1 for every $3 top-up.

Flat owners who have excess proceeds after topping up their Retirement Accounts can keep up to $100,000 in cash.

The rest will be used to further top up the Retirement Account of the owner with the lowest balance, up to the prevailing CPF Minimum Sum.

If both owners have already reached the CPF Minimum Sum, the flat owners can keep all excess cash proceeds.

All owners must buy a CPF Life plan if their Retirement Account has at least $40,000 (if below age 65) or $60,000 (if aged 65 to 79) after the top-up.

With increasing longevity, there might be some retirees who worry that they may outlive their 30-year lease, but an HDB spokesman said that no lessee under the scheme will become homeless even if he or she outlives the 30-year lease.

"The HDB will look into the circumstances of each case to determine the appropriate housing arrangement for them, if they are unable to pay for lease extension when their lease terminates," he said.

Also, the HDB conducts financial counselling sessions for applicants to both the Enhanced Lease Buyback and Silver Housing Bonus schemes. This is to help them understand the terms and conditions of the schemes, and how the CPF Life annuity works.

Who is eligible?

This scheme applies to owners of three-room or smaller flats, with at least one owner who is a Singapore citizen. All owners have to be 63 or older with a gross monthly household income of $3,000 or less. The owners cannot have a second property, and must have lived in the flat for at least five years.

Applicants can submit an online application on the HDB InfoWeb, using their SingPass. Those who need help with the application can go to any HDB branch.

Lease buyback scheme leaves retiree $130k richer
By Magdalen Ng, The Sunday Times, 14 Apr 2013

Retiree Kwek Joo Heng will get about $130,000 by selling the tail end of the lease on his three-room Ubi flat under the Enhanced Lease Buyback scheme.

Mr Kwek, 67, found out about this scheme while watching the news on television last year and thought that it would be a good way to provide himself with a steady stream of income in the coming years.

His flat, which he bought in 1985, has about 70 years left on the lease. Under the scheme, the HDB bought the unit from him for more than $300,000 and he paid about $170,000 for the 30-year lease.

"Some people have told me that I could get more money if I sold my flat on the open market, but that is too troublesome for me. This scheme is good; I get to stay in my flat where I am familiar with the surroundings," he said in Mandarin.

Mr Kwek has been the sole owner of the flat since his wife died in 2005. He has no children.

"If I had children, then I wouldn't sell my flat back to the Government. Of course, I would want to leave it to them," he added in an interview with The Sunday Times.

He used to work as a cleaner at a nearby primary school but quit to take care of his wheelchair-bound mother who is in her 80s. She moved into his flat last year. His younger brother, a supermarket worker, also lives with them.

Most of the $130,000 net proceeds will be used to top up Mr Kwek's Central Provident Fund (CPF) Retirement Account, and depending on which CPF Life scheme he opts for, he will receive a monthly annuity of about $700 for his lifetime.

This will be more than sufficient to cover his household expenses, which he estimates to be $500 to $600 a month, which mostly goes to food.

Mr Tan will also get to keep the excess of about $15,000 in cash, on top of a cash bonus of $20,000. He plans to save the money.

"Medical costs can be very expensive. Luckily I'm still doing okay," he said.

Describing an average day, Mr Kwek said that every morning from Monday to Saturday, he takes his mother to physiotherapy before cooking lunch at home.

On Sundays, he goes to a nearby temple and joins others there for different activities.

"During the weekday afternoons, sometimes I take a bus to Chinatown, just to walk around. I like to go around and look at things. Just to pass time," he said.

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