Monetizing Housing Equity to Generate Retirement Incomes

Ngee-Choon Chia, Albert K C Tsui
JEL codes: 
SCAPE Working Paper Series

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.