A roof over your head – that’s a basic necessity that Singaporeans look for and work towards.
With government-subsidised housing, it’s no surprise that our respondents in the Singapore Life Panel® (SLP), have a major part of their wealth in the flats that they own. But now that they are retiring or retired, can they sell the homes they live and use their housing wealth to live on?
This was one of the major issues which the participants of our third Roundtable wanted to know the answer to, on 16 August. They represented the Government ministries and statutory boards and agencies which are dealing with housing-related matters such as the Central Provident Fund Board, Housing & Development Board, the Ministries of Manpower and National Development, Urban Redevelopment Authority and other research centres.
In the presentation on the SLP, CREA’s Senior Research Associate Stephen Hoskins shared that respondents living in high value HDB areas (Bukit Merah, Queenstown and Toa Payoh) had the least accurate assessment of their house’s value. Could this be due to them having lived there a long time and not updated their expectations with improvements in nearby amenities?
Also, many respondents bought their first home in their late 20s & early 30s. They upgraded to a bigger home in their late 30s, and gradually start to downsize after age 45. Mature Singaporeans who own their homes tend to have between five and seven times more wealth than a neighbour who rents the same type of house.
In her presentation on “The Role Of Housing Wealth in Retirement”, Assistant Professor Li Jing revealed that the lowest 10th percentile of our respondents have S$40,000 of housing wealth. Three quarters of it are their Central Provident Fund (CPF). The 30th percentile, are worth 10 times as much but 90% of their wealth is in housing. The highest 10th percentile have S$2.4 million and the amount is divided roughly into a third each in housing, CPF and financial wealth.
When respondents have a major part of their wealth in housing, they tend to spend less, have lower retirement preparedness and are more careful and spend less on their health when they experience health shocks.
Professor Phang Sock Yong spoke about “Three Puzzles in the Monetisation of Housing”. She elaborated on the US reverse mortgage, the Singapore reverse mortgage and the Singapore Lease Buyback Scheme.
Although financially attractive, Professor Phang pointed out that the US reverse mortgage was taken up by only 2% of eligible seniors. This could be because they didn’t understand the benefits of the product or were not expecting the fall in house prices.
The take-up rate for the Singapore reverse mortgages (discontinued in 2009) was dismal due to its unattractive features. You had to be at least 70 years old, the property must have 70 years of leasehold remaining and the risk of declining house prices falls on the borrower who is liable for negative equity.
Only 1% of eligible households have joined the Lease Buyback Scheme. Respondents estimate only a 10-20% chance on average that they will participate. The obstacles cited are that it is too complicated and they wish to leave a bequest to their children.
The final speaker for the Roundtable was Professor Kwong Koon Shing on “Modelling Equity Release Products”. He highlighted the financial specifics of the Hong Kong and UK reverse mortgage schemes, and then proposed a novel equity release scheme for Singapore. This would enable mature Singaporeans to sell a portion of their remaining lease, with the property being sold and a proportion retained as a bequest. Such an alternative would ensure people can stay in their house for life, partially enjoy the benefits of their property appreciating, and it offers high flexibility.
Participants were most forthcoming with their suggestions and questions. They wanted to know how SLP categorises respondents who are living with their children and whether CREA’s question on financial preparedness included physical, financial and emotional support. Also, they highlighted that expectations of financial preparedness is very subjective – some people can cope with S$2,000 whereas for others, S$10,000 would be more adequate.
With the higher home ownership rates and the pattern of wealth more skewed towards home ownership in Singapore, it isn’t necessarily a bad thing to have your wealth locked in your home. You have the security of a roof over your head and need not worry about rent. What needs to be looked into is more monetisation channels for housing.
Please find the programme here.
The event was covered by several news media outlets, see the following:
Research@SMU: HELPING SENIORS UNLOCK THE VALUE OF THEIR HOMES