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Monetizing Housing Equity to Generate Retirement Incomes

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  • Ngee-Choon Chia

    (Department of Economics, National University of Singapore)

  • Albert K C Tsui

    (Department of Economics, National University of Singapore)

Abstract

The 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 Info

Paper provided by National University of Singapore, Department of Economics, SCAPE in its series SCAPE Policy Research Working Paper Series with number 0901.

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Date of creation: Jul 2009
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Handle: RePEc:sca:scaewp:0901

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Web page: http://www.fas.nus.edu.sg/ecs/scape/index.html
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  1. Ronald Lee & Timothy Miller, 2001. "Evaluating the performance of the lee-carter method for forecasting mortality," Demography, Springer, Springer, vol. 38(4), pages 537-549, November.
  2. 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.
  3. McCARTHY, DAVID & MITCHELL, OLIVIA S. & PIGGOTT, JOHN, 2002. "Asset rich and cash poor: retirement provision and housing policy in Singapore," Journal of Pension Economics and Finance, Cambridge University Press, Cambridge University Press, vol. 1(03), pages 197-222, November.
  4. Chia, Ngee-Choon & Tsui, Albert K.C., 2005. "Medical savings accounts in Singapore: how much is adequate?," Journal of Health Economics, Elsevier, Elsevier, vol. 24(5), pages 855-875, September.
  5. Steven F. Venti & David A. Wise, 2001. "Aging and Housing Equity: Another Look," NBER Working Papers 8608, National Bureau of Economic Research, Inc.
  6. 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, Cambridge University Press, vol. 2(01), pages 41-65, March.
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