# Each HDB flat lose \$700,000 – Enhanced Lease Buy-back?

We refer to the article “Unlocking the value of homes for the elderly” (Channel NewsAsia, Aug 15).

Enhanced Lease Buy-back?

It states that “At the time of the sale in June this year, their flat at Bedok North Street 3 was valued at S\$320,000. The couple retained a 30-year lease on their flat, and sold the remaining lease back to HDB.

They got S\$134,000 and that was used to top-up their CPF Retirement Accounts. The couple then used the amount in their Retirement Accounts to buy a CPF annuity plan, which gives them S\$790 cash per month. For participating in the scheme for lower-income households, the couple received a cash bonus of S\$20,000.”

Reverse mortgage?

In a typical reverse mortgage in other developed countries, the homeowner would borrow against the equity of his home, and receive the net proceeds of the market value less the loan plus accrued interest, on his demise.

Let’s try to analyse the numbers for this case.

Each flat lose \$700,000?

The \$320,000 flat – if it appreciates at say an average annual rate of 5% (HDB historical rate of appreciation is about 6%) – will be \$1,383,022 in 30 years time.

The \$155,000 (\$135,000 top-up to CPF plus \$20,000 cash bonus) if assumed to be borrowed at an average interest rate of 5% (currently the banks’ housing loan rate is about 1.5%) – will accrue to \$669,901, in 30 years time.

So, in a sense, does it mean that the flat owner stands to lose \$713,121 (\$1,383,022 minus \$669,901)?

If so, then who gained \$713,121 per flat under such a scheme?

Also, what is the probability that this 71 year old man will live to 101 years old (the end of the 30 years lease)?

S Y Lee and Leong Sze Hian

P.S. Come with your family and friends to the 3rd Return Our CPF protest on 23 August 4 pm at Speakers’ Corner https://www.facebook.com/events/648543138548193/?ref=2&ref_dashboard_filter=upcoming

#### About the Author

##### Leong
Leong Sze Hian has served as the president of 4 professional bodies, honorary consul of 2 countries, an alumnus of Harvard University, authored 4 books, quoted over 1500 times in the media , has been a radio talkshow host, a newspaper daily columnist, Wharton Fellow, SEACeM Fellow, columnist for theonlinecitizen and Malaysiakini, executive producer of Ilo Ilo (40 international awards), Hotel Mumbai (associate producer), invited to speak more than 200 times in about 40 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of 2 countries. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.