Sell the tail of the lease

Hi Mr Tan

The Prime Minister has announced that HDB will bear back the tail of the lease, and allow the 3-room flat owner to keep the next 30 years. Is this a good scheme? How much can the owner get for selling this tail?

REPLY

It offers another option for the HDB flat owner to raise money to live on. Assuming that the remaining lease of the flat is 70 years, the amount that can be obtained by selling the tail of 40 years (i.e. keeping the next 30 years) is, according to my estimate, about 33% to 40% of the current value of the property. It depends on the interest rate that is used for the calculation.

If the current value of a 3 room flat is $160,000, the sale of the tail of 40 years can bring between $53,000 to $64,000. Part of this sum can be received in cash and the remainder has to be credited to the Central Provident Fund account.

This is just my guess. Let us wait for the details, when it is announced by HDB.

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I have written a paper to suggest measures to allow people to make adequate savings for retirement, by making better use of the CPF. Here is the paper. I hope you agree with me.

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If you are investing in an equity fund which aims to give you a gross return of 7%, you can accept an expense charge of 2%, to give you an net yield of 5%.

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The letter was published in the Straits Times (Insight) a few days ago. You can read my suggestion in this article.