HDB reviews housing rules to stop rental investors and speculators

The Housing and Development Board is reviewing its rules to curb illegal subletting and speculation in the public housing market.

The review comes amid new concerns over issues on public housing affordability, prompted by the latest data released by HDB that showed that prices of resale flats continued to escalate in Q4 2009.

In addition, the median cash premium that home owners have to pay upfront increased two-fold to S$24,000 prompting the intervention of the government.

However, the resale market should be permitted to operate as a free market with prices set on the basis of a "willing buyer, willing seller", noted Mr. Mah.

“Now, if you are a buyer, you feel anxious because you want prices to be low. But if you are a seller, you want prices to be high. So it's not possible for the government to set the resale prices,” he said.

“If you were to interfere in the COV (Cash-Over-Valuation), or the resale flat market, essentially, you are saying the government should set the resale flat prices which I think both parties will be unhappy. Why? Because the buyer may be happy today, but today if he's a buyer, tomorrow he would be a seller. Then when we set the prices and he wants to sell, he will be unhappy.”

While Mr. Mah is promoting a free market, he stressed that HDB flats are for "owner-occupation, not speculation or rental investment", and drew the line at speculation. HDB is reviewing rules to ensure that there is no artificial inflation that drives up prices.

“If somebody is coming in and buying because they hope to make money, through flipping or selling the flats later on, or to buy to rent without staying in there, I think that's not possible. That's not the idea of HDB flats,” he said.

Mr. Mah refused to disclose which rules are being studied. However, he noted that the board will release the complete results of the review within a few months.

According to housing analysts, speculators are not the main problem, as prices are not increasing fast enough to draw them in.

Eugene Lim, ERA's Associate Director for Asia-Pacific, noted that prices have to be escalating rapidly for speculators to be drawn in the market.

“It's basically a case of demand more than supply, because there are probably more people with immediate housing needs now, who cannot wait for the three years for new flats to be built. There is also an increasing population of PRs. They're not allowed to buy from HDB direct, so they have to go to the resale market,” said Mr. Lim.

However, Mr. Lim noted that even if his firm’s business from PRs increased to 25 percent from 20 percent earlier, that is still considered a small factor to spur speculation. The review of housing rules indicates that HDB is "leaving no stone unturned".

On the other hand, homebuyers who purchased flats to earn rents are seen to be partly driving up the demand.

“If an investment gives you 7 to 8 percent (returns), it is certainly very attractive to look at. Because it's quite easy to rent out a HDB flat. It doesn't cost much - with $300,000 or $400,000 you can get a HDB flat, you can get good returns, it does attract a fair number of people to look at this option,” said Mr. Lim.

Based on the latest figures released by HDB, 56 home owners were caught renting out their flats illegally between January 2008 and December 2009.

Offenders will be asked to pay a fine of between S$1,000 and S$21,000 and may even have their flats repossessed.

“I've asked HDB to also step up on any possible breaking of the rules. I don't know if it's extensive but anecdotally you do hear one or two cases. So we want to make sure that this is not happening,” said Mr. Mah.

Observers, however, said that most transactions are done under the table, making it difficult to enforce even the tightened rules.

Analysts have suggested tweaking the rules on how flats are financed to help curb demand.