Why HDB lease buyback needs an overhaul – and how

By Christie Loh

SMU Office of Research Governance & Administration – Aiming to correct shortcomings in Singapore’s existing public housing lease buyback scheme, one of Singapore Management University’s (SMU) top statisticians has designed a hybrid product that would better secure the nest eggs of elderly Singaporeans.

It may also make the scheme more financially sustainable in the long run for its backer, the Housing Development Board (HDB).

Over the past decade, Professor Kwong Koon Shing, a statistician, risk analyst, and actuary at SMU’s School of Economics has been scrutinising the nation’s pension system as part of his research work. In particular, he has homed in on the HDB Lease Buyback Scheme, which is the only equity-release avenue for retirement financing that is available to HDB owners. And he sees much room for improvement.

The HDB Lease Buyback Scheme was launched in 2009 to allow flat owners aged 65 and above to sell the tail-end of their remaining lease to HDB in exchange for a cash lump-sum and the right to continue staying rent-free in their flat until their front-end lease expires. The money they receive from the sale to HDB must be used to top up the flat owner’s Retirement Account held with the Central Provident Fund (CPF), which releases monthly payouts through CPF Life, a national longevity insurance annuity plan. After the CPF top-up, the flat owner may keep the leftover proceeds, if any, as cash.

Sounds like a low-risk way of monetising your flat so that you receive a regular stream of income in your golden years, without the woes of house-hunting and moving. Yet the Lease Buyback Scheme has not gained much traction over the past 15 years and in spite of three subsequent enhancements to entice more takers.

Its adoption since launch has been “relatively low” at 12,656 households as of June 2024, said Professor Kwong, considering that approximately 95 percent of the 1.2 million HDB flats are owner-occupied.

This may be due in part to the scheme’s “significant drawbacks that hinder its effectiveness and attractiveness”, he wrote in a research paper titled "Redesigning Home Reversion Products to Empower Retirement for Singapore’s Public Flat Owners”, published in January 2025 in Risks, a scholarly journal about insurance and financial risk management.

His research paper was the result of funding from both Temasek Trust, the philanthropic arm of sovereign wealth fund Temasek Holdings, and a Tier 1 grant from Singapore’s Ministry of Education Academic Research Fund.

The impact and drawbacks of proposed improvements

Professor Kwong has come up with a “hybrid” solution that will “fine tune and empower the Lease Buyback Scheme in Singapore”.

In its current form, the Lease Buyback Scheme “falls short of fully supporting the concept of ageing in place”, he said. It guarantees residence for a pre-determined period rather than for the homeowner’s lifetime. Should the retiree outlive the tail-end lease sold to HDB, she will have to find alternative living arrangements.

On the financial side, she will not enjoy any future rise in property prices, as she has sold 100 per cent of the tail-end lease and is no longer owner, Professor Kwong added. The HDB scheme prohibits the retiree from selling or subletting the flat.

A better solution, he said, would involve the homeowner selling just a portion of property to HDB at a discounted price, allowing her to stay in the flat for life. The impact of such a change would be significant for both the HDB and homeowners. What HDB purchases is therefore a guarantee to receive a portion of the future sale proceeds when the flat is eventually sold. This is akin to the Home Reversion products currently available in Australia and Britain.

By remaining part-owner of the flat, the retiree will benefit from any future property appreciation and has a “safety net”, Professor Kwong told the Office of Research Governance and Administration (ORGA) in an interview.

“She can use this portion of the HDB flat value to tackle inflation in the future,” reversing the precarious state of a retiree becoming asset-poor and cash-rich under the Lease Buyback scheme. “She can also arrange it as a bequest, to make sure her family has a certain percentage of the flat value after she dies. Unlike the LBS, which leads to family conflict since the longer the homeowner lives, the smaller the bequest remaining,” he added.

Overall, “this innovative product incorporates the CPF Life benefit for lifetime monthly incomes and provides a guaranteed stay period”, as well as several features including a guaranteed return of the principal amount, and a fair pricing strategy based on homeowners’ demographic characteristics, he said.

Now for the numbers

Using actuarial science, Professor Kwong and his team are the first outside HDB to work out a pricing model of the HDB Lease Buyback Scheme and to compare it with his hybrid solution.

More than half of his 20-page research paper lays out calculations, graphs and tables for his proposal’s actuarial pricing model, which incorporates variables such as the number of owners in a flat, their gender, and their ages. “This personalised pricing strategy allows single male older homeowners to pay a significantly lower price for the same benefits, making the product more attractive and accessible to this demographic compared to the uniform pricing criteria of the LBS for all homeowners,” he wrote.

In contrast, the existing Lease Buyback Scheme’s “one-size-fits-all pricing model does not consider the unique circumstances and needs of older individuals, making the scheme less attractive and potentially inequitable for this demographic”, he said. Essentially, he said, think of it as providing an insurance product to the asset-rich, cash-poor retiree, not a financial product.

The impact here is quantifiable. Professor Kwong examined the hybrid product’s cash flow analysis from the provider’s perspective: “These projected financial results can serve as a comprehensive pricing model to determine the product’s price, incorporating associated expenses and required investment returns.” Under the proposal scheme, the amount could be at a more sustainable level in the long term since the provider would no longer be buying the entirety of a flat’s tail-end lease, he said.

In August 2025, Professor Kwong is scheduled to present his research paper at the Singapore Actuarial Conference 2025.

In the meantime, Professor Kwong has turned his eye to the “more complex” private property market in Singapore and how a home reversion product could meet retirement needs there. “All the different factors, such as leasehold and freehold properties, non-standardised flat types, collective sale opportunity compared to the HDB standardised and controlled market, make my research much more challenging,” he said.