More renting out HDB flats after rules relaxed

April 1, 2007, 10.00 pm (Singapore time)

More renting out HDB flats after rules relaxed



MORE than 300 flat owners have been given the green light to rent out their apartments following last month's easing of rules by the HDB.

A big group of them were only able to do so after the change, which cut the time they needed to live in their flats before they could rent it out.

According to the HDB, out of the 325 people granted approvals within two weeks of the change, about 40 per cent would not have been able to qualify under the old rules.

The changes to the rules were made to allow more people to earn cash from their properties.

The previous policy allowed people to rent out their flats only after five years, or 10 years if had not paid up their HDB home loan.

Under the new regime, it no longer matters if owners have paid up their loan. They only had to live in their flat for three years, unless they had bought their flat with a subsidy or grant from the Government, in which case the timeframe is five years.

This immediately increased the pool of eligible flats to 645,000, out of more than 800,000 flats islandwide. When the previous rules came in place in 2005, only 356,000 flats could immediately be let out .

Just before the rules were eased on Mar 3, 12,600 households had sublet out their entire flat.

Rentals for HDB flats have been rising over the past year, in some cases as much as 35 per cent. The demand, say property agents, is driven by foreign professionals and students who find private apartments out of their reach.

According to the HDB, about half of these 325 households who got the approval had an outstanding HDB home loan. This means that their rental income can now be used to pay for their mortgage.

About one-third of these households were made of older people - aged 55 and above - they tended to move out to live with children after subletting their whole flat.

April 2, 2007

NEWS ANALYSIS

Subletting of HDB flats - an investment only for some

By Tan Hui Yee, Housing Correspondent


THE humble Housing Board flat is becoming more than just a home these days, judging from the possible returns you can get from renting it out.

With the latest easing of subletting rules early last month, flat owners can rent out their entire unit in just three years, or five years if they had bought it with a subsidy or housing grant. That makes more than two-thirds of all HDB flats out there eligible for subletting.

It also puts HDB flats closer than they have ever been to private property in terms of their potential for generating rental income.

The question to ask then is whether the mostly owner-occupied HDB flats are morphing into an asset class worthy of a savvy investor's attention.

The numbers seem to suggest so.

The experts will tell you that rental yields - defined as annual rents as a proportion of a property's purchase price - for HDB flats are typically higher than those of comparable private properties.

A three-room resale flat in Tampines, for example, can cost about $180,000 and can fetch about $1,000 a month in rentals - a yield of about 7 per cent.

In comparison, a two-bedroom condominium in the suburbs costing more than $400,000 can bring in about $1,800 a month in rent. That translates into a rental yield of about 5 per cent.

Making HDB flats even more attractive is the fact that demand still outstrips supply in the HDB rental market. Some units are being snapped up as soon as they are advertised.

The booming economy has led to an influx of foreign professionals and students, a number of whom do not have the deep pockets needed to rent private homes. And with the Government recently revising its population planning parameter upwards to 6.5 million, demand isn't expected to let up.

The sums look favourable too when it comes to maintenance costs. Someone who owns a typical HDB flat would pay up to about $80 a month in service and conservancy charges. This is less than half of the $200 a typical condominium owner pays each month in maintenance charges.

That said, the HDB flat is not quite like its private counterpart which is by far, a more liquid asset.

For starters, nobody can own more than one HDB flat. This immediately precludes investors thinking of snapping up a few concurrently to reap a steady stream of rent.

And then there is the minimum occupation period. While shortened, it still guards against the indiscriminate use of the flat - intended as a home - solely as an instrument of investment.

This means that investors will have to move into the flat for the stipulated period before they can let it out for income. Leaving the flat empty to wait out the occupation period flouts the HDB's rules and could result in penalties.

The rules were relaxed primarily to benefit ageing parents, who will now find it easier to move in with their children and rent out their own flat for extra income.

But the changes also create opportunities for select groups of flat owners.

According to property agency chief Albert Lu, some married couples are actually making plans to move back with their parents so that they can rent out their flats for cash.

Flat owners intending to move on to a private home also stand to benefit. In the past, the bulk would have had to sell their flat simply because it would have been too hard on the wallet to service two separate mortgages at the same time.

Being able to rent it out after three or five years means that the flat could be self-funding. Ownership of both the flat and the condominium unit for instance, then becomes a more realistic possibility.

The decision on when to sell either of them, if at all, will then be based on purely economic and monetary considerations.

The relaxed subletting policy will not benefit all, and neither will it transform the HDB flat into an investment asset in its truest sense. The flat will remain, as it has always been, a home to Singaporeans.

But for those who fit the bill, the flat could well turn out to be a trusty source of alternative income.

As the chairman of the Government Parliamentary Committee for National Development and Environment, Mr Charles Chong, put it: 'Why should only private property owners have that sort of privilege?'

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HOME COMES FIRST


The relaxed subletting policy will not benefit all, and neither will it transform the HDB flat into an investment asset in its truest sense. The flat will remain, as it has always been, a home to Singaporeans.