Don't sell that HDB flat

[mr funny]

http://www.straitstimes.com/Invest/S...ry_574954.html

Sep 5, 2010

small change

Don't sell that HDB flat

With new rules, it has become something that sometimes money can't buy

By Dennis Chan , DEPUTY MONEY EDITOR


The anti-speculation measures to cool the property market, particularly with regard to public housing, have turned some conventional wisdom about buying a Housing Board flat on its head.

A few months ago, I wrote a column encouraging first-time buyers to be less choosy and to go ahead and get that new flat directly from the HDB; never mind if it is located in far-flung estates like Sengkang and Punggol.

Now I'm not so sure.

Changes in the rules on public housing last week mean that it is imperative for buyers to take extra care in selecting their flats, as there are longer-term implications to their choice than was the case previously.

Before I go on, let's recap the key changes in order to understand how far-reaching the impact they may have on HDB prices as well as on the psychology of home buyers and home owners.

The new restrictions are:

# Private property owners who buy an HDB flat must dispose of their private home within six months of buying the flat.

# If you are an HDB flat owner, you must have lived in your flat for at least five years before you can buy a private property.

# You must live in your HDB flat for five years before you can sell it, regardless of whether you bought directly from the HDB or in the open market. The lock-in is known as the minimum occupation period.

# Buyers with outstanding loans must put down

30 per cent of home valuation, of which 10 per cent must be in cash.

So what are the implications?

First off, the mobility of HDB home owners has been curtailed sharply.

Consider the situation at the start of the year. If you had bought a non-subsidised resale flat and did not take a loan from the HDB, you could sell it after one year.

In March, the time bar was raised to three years. It's now five, effective from last Monday. This change has no impact on first-time buyers who receive a housing subsidy as they have been required all along to occupy their flat for five years.

But it has a big impact on upgraders and downgraders.

The extended minimum occupation period will take away much of the speculative activity, effectively removing a layer of demand from the market.

Another source of demand - that from private property owners - has also been filtered out.

In the past, one in 10 resale flat buyers also owns private property. This is not an insignificant number, given that such buyers tend to gravitate towards the more affluent segment of the HDB market. They prefer flats in popular estates like Bishan, Marine Parade, Central and Queenstown, where prices and rentals are among the highest on the island.

Without the support of cash-rich private property owners, the days of a buyer paying an astronomical sum over and above a flat's valuation are over.

The slackening demand should lead to a moderation in resale flat prices. They could even fall if buyers are spooked badly.

However, it's not all a one-way street on the demand side. If prices were to fall to a level affordable to a first-time buyer, new demand may form as people who were previously put off by the high prices start to shop around again.

This takes me back to my earlier point: Is it still worthwhile for a first-time buyer to buy a new flat?

For the majority, the answer is 'yes' as the incentives for first-time buyers remain attractive. Flat selection priority given to first-time buyers, a generous loan quantum of up to 90 per cent, flat prices significantly below the market level, fresh 99-year leases, and zero cash premium over valuation are some of the advantages of buying new flats.

But for a small group of first-timers, it may be better to consider buying resale instead of new flats, if prices fall to affordable levels.

The extension of the minimum occupation period and the broadening of its use to encompass private property purchases mean that settling for a less-than-ideal home could cramp future housing and investment options.

Take, for example, the life cycle of an upwardly mobile couple.

A well-trodden path for them would be to buy a subsidised new flat and then upgrade to a bigger resale flat, before moving on to owning a private home.

This three-step upgrading plan can be realised through a combination of rising home equity, increased savings and improved earning power as their careers progress.

Prior to March, it could have been achieved in six years - by living five years in the first flat and putting up another year in the second flat.

Now, they will have to wait at least 10 years if they take this path. Perhaps even longer, if the HDB market grows sluggishly as a result of too many ownership restrictions.

It gets more complicated if they want to buy an uncompleted property as they will not be able to execute a sell-and-buy deal back to back that will allow them to take an 80 per cent loan on their new home.

Buying a condo during its launch, for instance, will mean stumping up more cash upfront as banks can lend up to only 70 per cent.

Therefore, if you buy from the resale market, make sure you choose your flat wisely since it is a place that you will have to be content with for the long haul. That means keeping the flat beyond the minimum occupation period.

Bear in mind the high opportunity cost each time you move house due to the five-year lock-in rule.

So don't move house if you are currently an HDB home owner and have plans to invest in a private property in the near future.

As far as possible - I know this can be hard - avoid flats that may be picked for the Government's Selective En Bloc Redevelopment Scheme because the replacement flat that you get in exchange will lock you in on a fresh five-year term.

Also, you should not sell your HDB flat if you currently own a private property as well, unless you intend to say goodbye to public housing ownership for good.

Once you sell your HDB flat, you are allowed to buy another one only if you are prepared to give up private property ownership for five years - a pretty drastic outcome.

Under the circumstances, it's better to rent out your HDB flat than to sell it, even if you were to receive an enticing offer.

After all, rental return from an HDB flat is generally superior to what private residences can achieve.

Whether for your own stay or rental income, one should not give up owning an HDB flat as it keeps its value better than a leasehold private apartment or condo.

The bottom line is: Do not sell that prized HDB flat. Thanks to the new rules, it has become something that money can't buy, if you are a private property owner and intend to remain one.

Either that or hope for a reversal of this rule in the future.

[email protected]

[cashrich]

By making HDB flat so restricted, I would not be surprised if people hold long long for rental after MOP. Best yield right?

Gift to children when he grows up.

[mcmlxxvi]

By making HDB flat so restricted, I would not be surprised if people hold long long for rental after MOP. Best yield right?

Gift to children when he grows up.

How many years remaining lease can you gift before it becomes more a maintenance burden than appreciating asset?

[teddybear]

There are fallacies in this article, which I will mention below:
1) It didn't take into consideration capital gain. HDB flats by virtue that they are meant for own-stay (Govt has emphasized again & again), it is unlikely to have as big capital gain as private properties.
2) It didn't take into consideration that HDB tenants usually cause a lot of damages to the properties when they left (usually on self-lease and when they disappear you have no other recourse) and because the rental amount is much smaller, so the security deposit is usually not enough to even cover the repairs! As such, owning HDB flats for rental income is a bad bad idea. For rental properties, I make sure the property can be rented out for at least $5k per month and holding 2 months security deposit of at least $10k (so more than sufficient to cover repairs for general damages to properties due to negligence by the tenant).

http://www.straitstimes.com/Invest/S...ry_574954.html

Sep 5, 2010

small change

Don't sell that HDB flat

With new rules, it has become something that sometimes money can't buy

By Dennis Chan , DEPUTY MONEY EDITOR


The anti-speculation measures to cool the property market, particularly with regard to public housing, have turned some conventional wisdom about buying a Housing Board flat on its head.

A few months ago, I wrote a column encouraging first-time buyers to be less choosy and to go ahead and get that new flat directly from the HDB; never mind if it is located in far-flung estates like Sengkang and Punggol.

Now I'm not so sure.

Changes in the rules on public housing last week mean that it is imperative for buyers to take extra care in selecting their flats, as there are longer-term implications to their choice than was the case previously.

Before I go on, let's recap the key changes in order to understand how far-reaching the impact they may have on HDB prices as well as on the psychology of home buyers and home owners.

The new restrictions are:

# Private property owners who buy an HDB flat must dispose of their private home within six months of buying the flat.

# If you are an HDB flat owner, you must have lived in your flat for at least five years before you can buy a private property.

# You must live in your HDB flat for five years before you can sell it, regardless of whether you bought directly from the HDB or in the open market. The lock-in is known as the minimum occupation period.

# Buyers with outstanding loans must put down

30 per cent of home valuation, of which 10 per cent must be in cash.

So what are the implications?

First off, the mobility of HDB home owners has been curtailed sharply.

Consider the situation at the start of the year. If you had bought a non-subsidised resale flat and did not take a loan from the HDB, you could sell it after one year.

In March, the time bar was raised to three years. It's now five, effective from last Monday. This change has no impact on first-time buyers who receive a housing subsidy as they have been required all along to occupy their flat for five years.

But it has a big impact on upgraders and downgraders.

The extended minimum occupation period will take away much of the speculative activity, effectively removing a layer of demand from the market.

Another source of demand - that from private property owners - has also been filtered out.

In the past, one in 10 resale flat buyers also owns private property. This is not an insignificant number, given that such buyers tend to gravitate towards the more affluent segment of the HDB market. They prefer flats in popular estates like Bishan, Marine Parade, Central and Queenstown, where prices and rentals are among the highest on the island.

Without the support of cash-rich private property owners, the days of a buyer paying an astronomical sum over and above a flat's valuation are over.

The slackening demand should lead to a moderation in resale flat prices. They could even fall if buyers are spooked badly.

However, it's not all a one-way street on the demand side. If prices were to fall to a level affordable to a first-time buyer, new demand may form as people who were previously put off by the high prices start to shop around again.

This takes me back to my earlier point: Is it still worthwhile for a first-time buyer to buy a new flat?

For the majority, the answer is 'yes' as the incentives for first-time buyers remain attractive. Flat selection priority given to first-time buyers, a generous loan quantum of up to 90 per cent, flat prices significantly below the market level, fresh 99-year leases, and zero cash premium over valuation are some of the advantages of buying new flats.

But for a small group of first-timers, it may be better to consider buying resale instead of new flats, if prices fall to affordable levels.

The extension of the minimum occupation period and the broadening of its use to encompass private property purchases mean that settling for a less-than-ideal home could cramp future housing and investment options.

Take, for example, the life cycle of an upwardly mobile couple.

A well-trodden path for them would be to buy a subsidised new flat and then upgrade to a bigger resale flat, before moving on to owning a private home.

This three-step upgrading plan can be realised through a combination of rising home equity, increased savings and improved earning power as their careers progress.

Prior to March, it could have been achieved in six years - by living five years in the first flat and putting up another year in the second flat.

Now, they will have to wait at least 10 years if they take this path. Perhaps even longer, if the HDB market grows sluggishly as a result of too many ownership restrictions.

It gets more complicated if they want to buy an uncompleted property as they will not be able to execute a sell-and-buy deal back to back that will allow them to take an 80 per cent loan on their new home.

Buying a condo during its launch, for instance, will mean stumping up more cash upfront as banks can lend up to only 70 per cent.

Therefore, if you buy from the resale market, make sure you choose your flat wisely since it is a place that you will have to be content with for the long haul. That means keeping the flat beyond the minimum occupation period.

Bear in mind the high opportunity cost each time you move house due to the five-year lock-in rule.

So don't move house if you are currently an HDB home owner and have plans to invest in a private property in the near future.

As far as possible - I know this can be hard - avoid flats that may be picked for the Government's Selective En Bloc Redevelopment Scheme because the replacement flat that you get in exchange will lock you in on a fresh five-year term.

Also, you should not sell your HDB flat if you currently own a private property as well, unless you intend to say goodbye to public housing ownership for good.

Once you sell your HDB flat, you are allowed to buy another one only if you are prepared to give up private property ownership for five years - a pretty drastic outcome.

Under the circumstances, it's better to rent out your HDB flat than to sell it, even if you were to receive an enticing offer.

After all, rental return from an HDB flat is generally superior to what private residences can achieve.

Whether for your own stay or rental income, one should not give up owning an HDB flat as it keeps its value better than a leasehold private apartment or condo.

The bottom line is: Do not sell that prized HDB flat. Thanks to the new rules, it has become something that money can't buy, if you are a private property owner and intend to remain one.

Either that or hope for a reversal of this rule in the future.

[email protected]

[viosrider]

I have a question.

Last year around June, I bought a Condo property, schedule to TOP around 2012. However, my current 5rm HDB resale flat has just been bought March last year. I intend to stay at the pte pty for my family of 5. I have some queries:-

1) I won't be affected by the new ruling rite? I.e. I can retain my HDB flat?( new ruling starts 30 Aug 2010)

2) I was told by CPF board to dispose my HDB flat within 6mths once the pte pty TOP in 2012.

3) If retain HDB then the Multiple Property ruling applies for my spouse & me.
Meaning both of us must have at least $112k in our combined ordinary acc in CPF. This was told to us by CPF last year.

After hearing all these new policies & changes, I would like to retain my HDB flat. I have sufficient CPF savings to tide thru even when TOP comes in order to fulfil the Multiple Properties Ruling.

Question, I'm not sure whether can I rent out my entire HDB flat after 3 years of occupation? Or is it 5 years? I have serviced my current flat through Stand Chart home loan. Thank you for your prior reply.

[Geylang OKT]

I have a question.

Last year around June, I bought a Condo property, schedule to TOP around 2012. However, my current 5rm HDB resale flat has just been bought March last year. I intend to stay at the pte pty for my family of 5. I have some queries:-

1) I won't be affected by the new ruling rite? I.e. I can retain my HDB flat?( new ruling starts 30 Aug 2010)

2) I was told by CPF board to dispose my HDB flat within 6mths once the pte pty TOP in 2012.

3) If retain HDB then the Multiple Property ruling applies for my spouse & me.
Meaning both of us must have at least $112k in our combined ordinary acc in CPF. This was told to us by CPF last year.

After hearing all these new policies & changes, I would like to retain my HDB flat. I have sufficient CPF savings to tide thru even when TOP comes in order to fulfil the Multiple Properties Ruling.

Question, I'm not sure whether can I rent out my entire HDB flat after 3 years of occupation? Or is it 5 years? I have serviced my current flat through Stand Chart home loan. Thank you for your prior reply.

Under the old rules (i.e. b4 30 Aug 2010)

If gotch apply for subsidy (i.e. housing grant) then MOP = 5 years.

If no subsidy (i.e. If you paid in full cash or took a bank loan e.g. Standchart), then MOP = 1 year.

After MOP period... thench can sell

[sleek]

Hey Bro! Think so long as your CPF can meet the MSS, don't think you need to sell the HDB.

I have a question.

Last year around June, I bought a Condo property, schedule to TOP around 2012. However, my current 5rm HDB resale flat has just been bought March last year. I intend to stay at the pte pty for my family of 5. I have some queries:-

1) I won't be affected by the new ruling rite? I.e. I can retain my HDB flat?( new ruling starts 30 Aug 2010)

2) I was told by CPF board to dispose my HDB flat within 6mths once the pte pty TOP in 2012.

3) If retain HDB then the Multiple Property ruling applies for my spouse & me.
Meaning both of us must have at least $112k in our combined ordinary acc in CPF. This was told to us by CPF last year.

After hearing all these new policies & changes, I would like to retain my HDB flat. I have sufficient CPF savings to tide thru even when TOP comes in order to fulfil the Multiple Properties Ruling.

Question, I'm not sure whether can I rent out my entire HDB flat after 3 years of occupation? Or is it 5 years? I have serviced my current flat through Stand Chart home loan. Thank you for your prior reply.

[viosrider]

Ok bros,

So meaning I can retain and rent out my whole HDB 5rm flat (resale non-subsidized) when my pte pty TOP! Since HDB flat is very precious now...

[Geylang OKT]

Ok bros,

So meaning I can retain and rent out my whole HDB 5rm flat (resale non-subsidized) when my pte pty TOP! Since HDB flat is very precious now...

Yes. Good luck!

[ysyap]

I have a question.

Last year around June, I bought a Condo property, schedule to TOP around 2012. However, my current 5rm HDB resale flat has just been bought March last year. I intend to stay at the pte pty for my family of 5. I have some queries:-

1) I won't be affected by the new ruling rite? I.e. I can retain my HDB flat?( new ruling starts 30 Aug 2010)

2) I was told by CPF board to dispose my HDB flat within 6mths once the pte pty TOP in 2012.

3) If retain HDB then the Multiple Property ruling applies for my spouse & me.
Meaning both of us must have at least $112k in our combined ordinary acc in CPF. This was told to us by CPF last year.

After hearing all these new policies & changes, I would like to retain my HDB flat. I have sufficient CPF savings to tide thru even when TOP comes in order to fulfil the Multiple Properties Ruling.

Question, I'm not sure whether can I rent out my entire HDB flat after 3 years of occupation? Or is it 5 years? I have serviced my current flat through Stand Chart home loan. Thank you for your prior reply.

Hi I think you might have a problem, if I don't misinterpret what you've written. You've probably wrote in to HDB in March last year, soon after you bought your HDB resale for permission to buy an underconstruction pte property because then it was 3 yrs MOP so it neatly coincided with your pte TOP date. HDB gave permission for you to buy on condition that you must sell HDB within 6 mths after you get your pte property. If you have accepted HDB's deal to buy b4 MOP which you did last June, then you will have to abide by HDB's requirement coz they let you buy before MOP when all others cannot buy.

However, it appeared that CPF gave you an option for your combined cpf ordinary acct to have certain amt of $$. You better check with HDB if its ok otherwise complications might occur.

Next, from what I understand of the new policies, all properties purchased before 20Aug are also subjected to these policies therefore you might not be able to rent your HDB after 3 yrs MOP coz now its revised to 5yrs. This is similar to the fact that if I sell my pte property bought 2 years ago (i.e. before 20 Aug), i must still pay the seller's stamp duty although the last time, it was only 1 year for SSD payment. Its best you check with HDB coz now they are extremely sticky abt such rules and don't give them any opportunity to confiscate your HDB. Better be safe than sorry...

[sleek]

Believe the MOP is only 1 year as it was bought on resale without HDB loan or subsidies. Probably, he need to declare the sale of the current HDB, due to MSS at time of purchase.

Hi I think you might have a problem, if I don't misinterpret what you've written. You've probably wrote in to HDB in March last year, soon after you bought your HDB resale for permission to buy an underconstruction pte property because then it was 3 yrs MOP so it neatly coincided with your pte TOP date. HDB gave permission for you to buy on condition that you must sell HDB within 6 mths after you get your pte property. If you have accepted HDB's deal to buy b4 MOP which you did last June, then you will have to abide by HDB's requirement coz they let you buy before MOP when all others cannot buy.

However, it appeared that CPF gave you an option for your combined cpf ordinary acct to have certain amt of $$. You better check with HDB if its ok otherwise complications might occur.

Next, from what I understand of the new policies, all properties purchased before 20Aug are also subjected to these policies therefore you might not be able to rent your HDB after 3 yrs MOP coz now its revised to 5yrs. This is similar to the fact that if I sell my pte property bought 2 years ago (i.e. before 20 Aug), i must still pay the seller's stamp duty although the last time, it was only 1 year for SSD payment. Its best you check with HDB coz now they are extremely sticky abt such rules and don't give them any opportunity to confiscate your HDB. Better be safe than sorry...

[isaaclim]

Ok bros,

So meaning I can retain and rent out my whole HDB 5rm flat (resale non-subsidized) when my pte pty TOP! Since HDB flat is very precious now...

You may have to check with HDB. You maybe restricted by old rule.

[august]

everything before 30 Aug old rules apply.. heck care new rules

[isaaclim]

There are fallacies in this article, which I will mention below:
1) It didn't take into consideration capital gain. HDB flats by virtue that they are meant for own-stay (Govt has emphasized again & again), it is unlikely to have as big capital gain as private properties.
2) It didn't take into consideration that HDB tenants usually cause a lot of damages to the properties when they left (usually on self-lease and when they disappear you have no other recourse) and because the rental amount is much smaller, so the security deposit is usually not enough to even cover the repairs! As such, owning HDB flats for rental income is a bad bad idea. For rental properties, I make sure the property can be rented out for at least $5k per month and holding 2 months security deposit of at least $10k (so more than sufficient to cover repairs for general damages to properties due to negligence by the tenant).

Cool... I like your comments...
You are indirectly tell many Pte cum HDB owner - Idiots leh... Are they?

[viosrider]

Oh I think you are right, that old rules apply since I bought both HDB resale and pte pty before 30Aug10.


Flat owners are eligible to sublet their flats if they have occupied them for at least :-

1. 3 years for flats purchased from the open market without a CPF housing grant and their applications for the purchase of the flats were received by HDB before 30 August 2010
2. 5 years for flats purchased from the open market without a CPF housing grant and their application for the purchase of the flats were received by HDB on or after 30 August 2010
   
3. 5 years for flats purchased directly from HDB or from the open market with a CPF housing grant
   

My case i believe falls under item (1). The above statement is found in my HDB [portal].