Sunday, July 26, 2009

HDB flats not for making money

Home-seekers may be snapping up HDB flats amid this recession as well, but don't dream of making a killing by investing in a public flat.

For one thing, HDB flats are meant to provide basic housing for the masses, which means they are not investment-grade properties.

'If you're looking to make capital appreciation or good rental income, then it is still the private condominiums because people who rent look for facilities,' said Mr Eugene Lim, associate director at property firm ERA Asia Pacific.

'The highest you can fetch in rent for an HDB flat in a good location is probably $2,000 plus. Any higher, people will go to condos,' he added.

HDB figures show that a three-room flat in Ang Mo Kio, Jurong West or Serangoon typically fetched rent of about $1,400 a month in the second quarter of this year.

Forget about making huge gains from selling your HDB property either.

'HDB is not a market that swings very widely. It is a gradual market,' said Mr Lim.

Strict HDB rules make it hard for anyone to profit from renting or selling his flat.

The board imposes a minimum occupation period on a home owner before he can sell his flat on the open market. This period depends on the mode of purchase, financing and the flat type.

Those who bought subsidised flats from the HDB would need to hold on to them for five years.

A flat owner who bought a resale flat without subsidy can sell it after 21/2 years if he has taken a loan from the HDB.

If he has not, or has taken a loan from a bank to finance his purchase, he can sell his flat after one year.

When it comes to renting out flats, those who bought resale flats without a housing grant from the government are allowed to sublet their entire flat only after three years of occupation.

Those who bought their flats from the HDB or from the open market with a housing grant will have to occupy their flats for at least five years before they are allowed to sublet their entire flat.

To sublet the whole flat, prior approval from the HDB is needed, and it is usually given if you have already fulfilled the minimum occupation period requirement.

Home owners do not need to seek permission from the HDB if they want to sublet just rooms in their flat, but they must continue to live in the flat during the period of subletting.

Only those who own a three-room or bigger flat are allowed to sublet a room.

Since the beginning of this year, the HDB has taken action against 12 flat owners who sublet their entire flat without prior approval. Last year, it caught 28 such flat owners.

It is understood that some got away with a warning and some were fined, but the most severe penalty could be having your flat taken away by the HDB.

The agency relies on tip-offs from the community and combs through the classifieds section of newspapers to sniff out those who illegally sublet their flats.

It also conducts half-yearly flat inspections for approved subletting cases.

Subletting rules for entire flats have been gradually relaxed since 2003 to allow flat owners to make some supplementary income and provide more rental options to those who do not own a home.

The maximum number of subtenants allowed per flat is four persons for one- and two-room flats, six persons for three-room flats, and eight persons for four-room and bigger flats.

Flat owners who own a private property can sublet their flat if they have met the minimum occupation period - three years for non-subsidised resale flats and five years for subsidised flats bought from the HDB.

But again, they must get written approval from the HDB first.

Source: Sunday Times, 26 July 2009

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