Monday, 27 February 2012

Lease Buyback Scheme: worth it or not?

There has been a recent debate over the low take-up rate of the Lease Buyback Scheme, a Government initiative that supposedly give elderly homeowners a source of income by buying back part of their home lease, putting it in an annuity, and then pay out a certain sum of money on a monthly basis. But at the end of the day, people are asking: is it worth it or not?

From my understanding, the Buyback scheme is only available for elderly who are 65 years old and above. Assume that they bought a flat with full 99-year lease at 30 years old (standard age of marriage) and took up a 30-year loan, they should have more or less paid up their loan and still left with 64 years of lease when they hit 65. Then the Gov buys back part of the lease (34 years in this example) and leaves 30 years for the couple to live in the flat. So the couple will be 95 years old by the time the lease expires.

Sounds good, but it leaves me with a few questions. How is the lease’s value calculated? How much will the couple get monthly? What happens if the elderly dies before the annuity dries up? Or if the annuity will dry up before the elderly passes on?

Unless meaningful data is calculated from the households who signed up (e.g. lease value, amount left in annuity etc) and presented in an easy-to-understand table, people are just gonna keep second-guessing the Gov’s intent, be it good or bad.

Assuming that no hidden agendas are involved, let’s compare the Buyback scheme against simple downgrading. With the ridiculous COV right now, it might make better sense for elderly homeowners to sign up for the Buyback scheme if they need a source of income desperately. But things change. COV might come down in the near future, and it might make better sense to downgrade, and then put the money in a savings or investment plan when that time comes. 

So my final verdict is: No need to rush into things. For working adults who are still in their 40’s, there’s still 20+ more years before retirement. So plan for both ends, then look at the market situation when retirement comes. In conclusion, it all depends on your retirement plan and the level of autonomy you want over your money.