Last year, the Government announced the introduction of the “2-room Flexi” scheme to replace the then-existing housing schemes meant for studio apartments and 2-room flats.
While the new “2-room Flexi” flats are also meant for low-income families and singles to have their own homes, we believe that one of the main driving reasons behind this new scheme is to allow retirees in Singapore to better monetise their existing home for retirement.
If you or your parents are considering this scheme for retirement planning, or rightsizing it to a smaller unit, then here are some things that you should know about the 2-room Flexi flats before deciding if such a scheme will suit their retirement needs.
A Tool For Retirement
The basic idea behind this “2-room Flexi” scheme is simple. For retirees who currently have an existing flat that is bigger than what they really need (e.g. their children have already moved out of a 4-room flat that they currently own), they can monetise their flat by selling it in the open market for cash and to then purchase a new and cheaper 2-room flat directly from HDB.
The secondary idea behind the scheme is that retirees may opt for shorter leases as well, since people do not go on living indefinitely. The scheme allows retirees to give themselves more money for retirement, rather than to see their wealth stuck in assets that they own but cannot monetise.
Those Who Have Bought 2 Flats Previously From HDB Are Eligible
Every Singaporean is allowed to purchase a maximum of 2 new flats (inclusive of DBSS and EC units). The taking of a housing grant when purchasing resale HDB flats from the open market is also considered as having used a chance.
For the 2-room Flexi scheme, Singaporeans are allowed to apply for it even if they have previously used up their two chances. That is provided if they opt for the short-lease option offered by the scheme.
The standard 99-year lease option for these 2-room flats is only available for those who have not used up their two chances.
Lease Period: 15 – 45 Years
To be eligible for the short-lease option, both you and your spouse will have to be at least 55 years old at the time of application. In addition, applicants will need to opt for a lease period that is sufficient to cover both of them till the age of 95.
For example, a couple that are both 60 years old will need to opt for a lease period of at least 35 years. Lease increment is in 5 years.
|Age Of Youngest Buyer||Minimum Lease Period|
|80 and above||15|
How Big Are These 2-Room Flats?
HDB 2-room flats come in two sizes, 36 sqm (387 sq ft) and 45 sqm (484 sq ft).
For comparison purpose, 45 sqm is about half the size of a typical 4-room flat. It comes with a kitchen, a toilet, a living/dining area, a bedroom and a household shelter.
Size wise, it is probably just right for an elderly couple who are living by themselves. The good news is that cleaning up the entire house should not take more than 30 minutes However, the Saturday afternoon mahjong game may need to be done elsewhere.
How Much Do The 2-Room Short Lease Flexi Flats Cost?
For short-lease 2-room Flexi flats, the selling prices of the flats will be discounted from the price in which HDB is selling the standard 99-year lease 2-room flats at. It goes without saying that the shorter the lease, the cheaper the flat would be. However, do note that the price reduction is not a direct proportion of the reduction in the lease.
For example, if a 2-room 99 years lease flat is selling at $110,000, a 40 years lease for the same flat bought from HDB would cost about $62,800.
For Illustration Purpose Only:
|99-Year Lease||40-Year Lease||15-Year Lease|
We think it is worth highlighting that the cost of building a flat to HDB would be the same, regardless of the final selling price that HDB sells it to its buyer.
Payment Method & Selling Options
This final part is important and worth knowing before any decision is make.
Unlike regular homes, applicants will NOT be able to take any form of housing loans for these short-lease 2-room Flexi flats. Payment has to be made either by Cash or CPF, or both. In other words, you need to make sure you have enough money to pay for the price of the home in full.
As per usual, CPF rules with regards to using CPF monies for home purchase applies.
Potential buyers may also want to remember that short-lease 2-room flats cannot be sold on the open market. If buyers no longer wish to live in their flat, or have passed away, the flat must be returned to HDB. HDB will pay out a pro-rated sum of the original selling price based on the remaining lease of the flat to the buyers, or their next-of-kin.
Retirement Planning Using The Short-Lease 2-Room Flexi Flat Scheme
As with all financial planning products, there are pros and cons for utilising this scheme for retirement planning.
If you are seriously considering this, we think it is worth finding out more details on this scheme from the HDB website. It is an important decision worth thinking, understanding and discussing with your spouse.