Why more
Singaporeans are asset-rich but cash-strapped.
A common gripe amongst many Singaporeans is that they have
to spend their savings to pay off home loans and by the time they retire, they
find themselves struggling financially as their savings have dried up.
The situation is even more desperate as over 80 percent of
Singaporeans live in HDB flats and even though many aren’t high-income earners,
they need to pay very high mortgages.
“If an average-income earner buys a new four-room flat, for
instance, he may have to pay upwards of S$300,000, while a five-room flat can
cost upwards of half a million dollars. By the time he finishes paying his
mortgage, he will be close to retirement age and won't have much left in his
CPF (Central Provident Fund),” said 62-year-old retiree David Lim.
Elderly Are
Suffering
He added that many retirees and midde-aged Singaporeans find
it harder to get jobs and as for younger flat buyers, they will be retired or
at least middle-aged by the time they fully pay off their mortgages. Hence,
they “will be asset-rich but cash-poor, unless government policies change,”
added Lim.
Agreeing with this, property consultant Getty Goh told The
PropertyGuru that “it is foreseeable that there could be some issues for
Singaporeans who wish to retire in future,” given the high HDB prices.
He was quick to add that the government is rolling out
several schemes in aid of “those looking to monetise their HDB flats”. These
schemes include the Silver Housing Bonus Scheme and the Lease Buyback Scheme
(LBS), which may be used to supplement retirement funds.
However, Goh is aware that owners’ reluctance to sell their
flats could be an impediment to the schemes. Many Singaporeans consider their
flats “a home and a lot of sentimental value is attached to it,” which is the
main reason why the LBS received a low take-up rate.
Schemes Not
Working?
Lim is doubtful if such schemes will address the problem
effectively, saying “in theory, this sounds good. But in practice, it's
different”.
“If a five-room flat owner downgrades to a four-room flat,
the actual profit is only about S$100,000, given the high prices of HDB flats
these days. Average- to low-income earners are likely to have to contribute
this amount, as well as the government bonus, to their retirement accounts /
CPF minimum sum, which cannot be touched until they reach 55. During the waiting
time, they are cash-poor.”
Even if the owner gets access to his retirement funds, he
will still remain cash-poor, “because the money will be tied up for the next 10
years while the government places it into an annuity till they are 65, whereby
they will receive monthly handouts from it, which do not amount to much,” noted
Lim.
As such, he feels an owner will still be asset-rich but
cash-poor, whether he takes advantage of the Silver Housing Bonus or not.
Goh believes another reason why the elderly are not keen to
downgrade is that they “feel that it is not financially worthwhile to downgrade
presently”.
“Even though they are able to fetch a premium for their
flats currently, they in turn would have to pay a high price for their
replacement flats. Unless there is a cheaper and more attractive housing
alternative, response for the Silver Housing Scheme will likely be as lukewarm
as the LBS.”
Lim said that “those who are not yet middle- or
retirement-aged will also remain asset-rich but cash-poor, unless one is living
in a HDB flat left to him by his parents and happens to be a high-income
earner, for example”.
What more can be
done?
When queried on how this issue could be solved, Goh
highlighted the government’s efforts to provide studio apartments for the
elderly since 1997, but suggested that the government could do more by
“increasing the supply of studio flats for sale and educating the elderly on
the financial benefits of downgrading”.
Citing HDB’s annual report, Goh noted that total bookings for
studio apartments between 2010 and 2011 reached 1,413, far below the 169,866
economically inactive Singaporeans above 65 years of age, based on Census 2010.
“If we use that as an indication of the magnitude of
potential retirees, at a steady rate, the number of new studio flats would have
to significantly increase to meet the potential demand,” noted Goh.
“At the end of the day, if the elderly are reluctant to
cash-out and insist on holding on to their units, the issue of being asset-rich
and cash-poor would still remain unresolved.”
Info courtesy -
PropertyGuru.com.sg
