(Photo: The Straits Times Library)

It's true that many Singaporeans are asset rich but cash poor.

The idea of utilising HDB flats to supplement retirement income has been talked about and discussed extensively in Singapore.

We look into how much help downgrading (or right sizing as the government would prefer to know it as) would realistically provide for the retirement of an elderly couple who do not have much saving.

Our Assumptions

Here are some assumptions to help us with our analysis.

(1) Couple owns a 5-room flat at a developed town such as Tampines. They intend to downgrade/rightsize to a 3-room flat in the same town.

(2) Couple has bought two flats directly from HDB previously. They are no longer eligible to purchase a new flat.

(3) Couple has no outstanding housing loan.  

(4) Couple has $100,000 in total in their CPF Retirement Account. They have no other savings.

(5) Couple gets $500 from their children each month.

Proceeds From Selling Their 5-Room HDB Flat

Based on HDB Medium Resale Price as at 3rd quarter 2015, a 5-room flat at Tampines would fetch about $515,500. At the same time, a 3-room flat at Tampines would cost $328,000.

In total, we are look at a difference of about $187,500 between the selling price and the buying price.

Additional Expenses Incurred

Agent Commission (Selling) – $10,300 (2% of selling price, negotiable)

Agent Commission (Buying) – $3,280 (1% of purchase price, negotiable)

Stamp Duty (Buying) – $4,769

Other Admin Fee (e.g. Conveyance Fees, Survey Fee) – $500 (approximate)

Basic Home Renovation – $15,000

Total Cost – About $34,000

An estimate of the total transaction cost incurred from selling a 5-room HDB flat and buying a 3-room resale unit would add up to be about $34,000. Do note that this is a conservative estimate.

Net return to the elderly couple after the downgrade would be about $153,000.

Monthly Payout For Couple Via CPF Life

Below is an estimate of the monthly payout the couple can expect to receive for their retirement.

  Total Amount In CPF Retirement Account Estimated Monthly Payout
Before Downgrading $100,000 $556 + ($500 from children)
After Downgrading $253,000 $1,352 + ($500 from children)

By downgrading to a smaller HDB unit, the elderly couple would be able to increase their payout by about $796 based on the scenario that we have used.

With an additional $500 from their children, the elderly couple would be able to obtain a monthly income of about $1,852. While this amount is by no means a lot, it is still a sufficient amount for basic living expenses with the occasional luxury. It also helps reduce the reliance that the elderly couple requires from the children, who might also be struggling to meet their own retirement needs.

In summary, these are the thought process needed if you are considering to downgrade your HDB flat. This applies to 4-room flat as well.

(First published in Dollars and Sense)