5 Reasons Why Short-Lease Flexi Flats are Bound to Get More Popular

Around 90 per cent of older flexi flat buyers are opting for a shorter lease. The trend isn’t surprising, and is likely to continue. Here’s why:

What is a short-lease flexi flat?

Starting in 2015, HDB began offering two-room flexi flats on variable leases. The standard flexi-flat has a 99-year lease; but if you’re 55 or older, you can opt for a short lease of between 15 to 45 years (the minimum lease you can take must cover you and your spouse till you are at least 95 years old).

A flexi flat on a 40-year lease costs just over $60,000, whilst those on 15-year leases can cost as little as $30,000. It’s an attractive proposition, as it means someone who buys on a 40-year lease is effectively paying around $125 per month for their housing.

By comparison, a flexi flat on a full 99-year lease would cost about $110,000. First and second-timer families, as well as first-timer singles, can buy flexi flats on a 99-year lease.

There are some drawbacks of course. There are, for example, no HDB loans for flexi flats on a short lease; and there’s likely no property for you to leave to any children. Nonetheless, we foresee that they’re going to become more popular over the years, for a number of reasons:

• An ageing population and a low birth rate
• Freeing up cash to invest elsewhere
• A comfortable retirement despite rising cost of living
• Healthcare inflation
• Short lease units are specifically designed for elder living

1. An ageing population and a low birth rate

In around 10 years, Singapore’s population of retirees (aged 65 and older) is expected to reach 900,000. This is double the number from 2015, which was just around 440,000. This is coupled with a low birth rate – our population growth seems to be stuck within the range of 1.3 to 1.8 per cent per annum, despite efforts to raise it.

This combination of more retirees, and fewer children, will be a major driver for short lease housing units.

2. Freeing up cash to invest elsewhere

Let’s say an older Singaporean sells her three-room flat for $350,000, and purchases a 40 year flexi flat for $70,000. This leaves a balance of $280,000.

If she can invest this at just four per cent per annum (at the very least, the CPF Retirement Account already has this rate), she could hit over $1.3 million over the course of 40 years.

There’s quite legacy she can leave behind, even if she doesn’t have a flat to give.

3. A comfortable retirement despite rising costs of living

A cheaper home can mean higher CPF pay outs, and more disposable income. Some older Singaporeans will opt for a short lease flat to increase their Income Replacement Rate (IRR) to the much desired 70 per cent or higher (that’s just a fancy way of saying they make 70 per cent of their former income).

This allows them to maintain a more or less similar lifestyle, even in the face of gradually rising costs. Which brings us to the related issue of…

4. Healthcare inflation

Singapore has one of the world’s highest rates of healthcare inflation at almost 10 per cent per annum (the global norm is eight per cent). This encompasses a whole host of worries, from rising health insurance premiums, to care for chronic conditions that arise in old age.

For example, if an older Singaporean gets a stroke, an Integrated Shield (IP) plan may only cover the post-hospitalisation costs for up to a year (depending on the plan in question). And these types of situations are bound to increase, as our population greys.

Older Singaporeans who find themselves facing higher medical costs – such as those on kidney dialysis – could find the option of short lease homes to be a significant relief. If you only need to pay, say, $60,000 for housing till you’re 95, that could make lifelong medical treatment actually affordable.

5. Short lease units are specifically designed for elder living

Older Singaporeans can opt to have safety features like grab bars or anti-slip floors in their short lease flats. This is a much cheaper option than having to pay a contractor to do it afterwards. In fact, based on on our conversation with some contractors, the installation of these features could cost as much as $3,000 to $4,000 if you have them installed yourself.

There’s also some strategising in the placement of these units – many are ideal for older residents, being located near polyclinics, walking parks, or other elder-oriented amenities.

We expect demand for short lease housing to grow, and for more Singaporeans to consider them part of a retirement plan

Some Singaporeans still have issues with flex flats – the traditional Asian mindset is fixated on owning  a property and passing it down. However, we see the practical realities and benefits of short lease housing eventually outweighing these. Singaporeans may have a traditionalist mindset, but they’re also a pragmatic lot.

The facts are simple: our future is going to consist of more elderly, childless couples at the rate we’re going. And unless this takes a u-turn, short lease flexi flats could one day be the norm; just a conventional step in many a retirement plan.

Would you move into a flexi flat when you’re older? Voice your thoughts in our comments section or on our Facebook community page.

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