Monetizing Housing Equity to Generate Retirement Incomes
AbstractThe public housing program and the unique way of financing housing through the mandatory savings system in Singapore have created a class of homeowners. This paper compares the instruments available to different flat owners to monetize their assets, including the Lease Buyback Scheme (LBS), subletting, downsizing and reverse mortgage. We estimate the present value of retirement incomes derived from these options by incorporating the survival probability which is forecasted using the Lee-Carter demographic model. We compare the monthly payouts that can be unlocked and discuss the tradeoffs of adequate retirement with the elderly preference for leaving a bequest and ageing in place. Our results show that LBS is the most attractive option. It allows the elderly to age-inplace while generating a steady stream of monthly drawdown and possibility of leaving a bequest. Subletting releases housing equity while retaining the asset. This helps the elderly to fulfill their bequest motive. Reverse mortgage is the least attractive option, yielding the lowest retirement income due to high loading factors.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 22759.
Date of creation: Jan 2009
Date of revision:
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More information through EDIRC
public housing; Lease Buyback Scheme; LBS; Lee-Carter demographic model; Singapore;
Other versions of this item:
- Ngee-Choon Chia & Albert K C Tsui, 2009. "Monetizing Housing Equity to Generate Retirement Incomes," SCAPE Policy Research Working Paper Series 0901, National University of Singapore, Department of Economics, SCAPE.
- R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
- H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
- H82 - Public Economics - - Miscellaneous Issues - - - Governmental Property
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- Chia, Ngee-Choon & Tsui, Albert K.C., 2005.
"Medical savings accounts in Singapore: how much is adequate?,"
Journal of Health Economics,
Elsevier, vol. 24(5), pages 855-875, September.
- Ngee-Choon Chia & Albert K C Tsui, 2005. "Medical Savings Accounts in Singapore: How much is adequate?," SCAPE Policy Research Working Paper Series 0502, National University of Singapore, Department of Economics, SCAPE.
- Ngee-Choon Chia & Albert K C Tsui, 2005. "Medical Savings Accounts in Singapore : How much is adequate?," Finance Working Papers 22567, East Asian Bureau of Economic Research.
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- Mitchell, Olivia S. & Piggott, John, 2004.
"Unlocking housing equity in Japan,"
Journal of the Japanese and International Economies,
Elsevier, vol. 18(4), pages 466-505, December.
- Chia, Ngee Choon & Tsui, Albert K. C., 2003. "Life annuities of compulsory savings and income adequacy of the elderly in Singapore," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(01), pages 41-65, March.
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