Sunday, March 28, 2010

‘Punish rogue agents and tenants too’

Moves to clamp down on illegal subletting of HDB flats should not penalise only the owner, property agents told The Sunday Times.

Tenants and rogue property agents who close these deals should also be held responsible, they suggested.

They were responding to a case that made the headlines two weeks ago in which the HDB repossessed three flats linked to a man, Mr Poh Boon Kay, who also owned five private properties.

It was the most serious case of illegal subletting in the last two years. Only three other flats have been compulsorily acquired by the HDB over that period.

Such owners are not left with nothing. The HDB pays them the difference between the value at which they bought the flat, and the financial penalty.

So in the case of Mr Poh, who the HDB said had bought his flat in 2007 at $150,000, the HDB is considering a fine of $25,000 and returning him $125,000. The flat would fetch about $320,000 in the current market, according to property analysts cited in media reports.

Owners like Mr Poh also have 28 days to appeal to the HDB from the time they are given notice of the repossession of their flats.

In another 52 cases over the past two years, errant flat owners were fined amounts ranging from $1,000 to $21,000.

Subletting HDB flats is seen as a good source of income, property agents noted. For instance, an owner who buys a three-room flat at $250,000 and sublets it at $1,600 a month will receive an annual return of $19,200, or close to 8 per cent of the price he paid for the flat.

This is double the 3 per cent to 4 per cent rental yield for private properties.

A tenant must get HDB’s approval before he sublets his flat. He does not need to do so if he sublets only spare rooms, but he must register with HDB within seven days of subletting the rooms.

An indication of the popularity of subletting is the steady increase in the number of approvals that HDB has granted, from 5,849 in 2003 to 15,344 in 2008, with a slight dip to 15,137 last year.

The HDB told The Sunday Times that while HDB flats are for owners to occupy, it has relaxed its policy over the years to make it easier for owners, including retirees, to sublet their flats to supplement their income.

Doing so also enlarges the rental market for HDB flats, and gives those who are not yet ready to buy a property more rental housing options.

Flat owners must fulfil some criteria, such as living in the flat for up to five years if they sublet the whole flat or continuing to stay in the flat if they sublet spare rooms. (see Subletting rules)

Property agents said some flat owners ignore the HDB’s requirement to obtain its approval because they do not want to become ineligible for government rebates in service and conservancy charges, and they want to avoid paying more in property tax.

The property tax rate is 10 per cent for owners who sublet their whole flat, much higher than the 4 per cent for those who live in their flats, in addition to enjoying property tax rebates.

Of greater concern is the unhappiness among people who believe they are being priced out of the HDB resale market by others with deep enough pockets to buy an HDB flat – not to live in it, but to sublet it and cash out later on.

‘I’ve heard a lot of complaints on the ground,’ said Ms Lee Bee Wah, an MP for Ang Mo Kio GRC. ‘These people are thinking it’s because those living in private estates are allowed to buy HDB flats and jack up prices.’

However, Minister for National Development Mah Bow Tan said this month that the majority of resale flat buyers are citizens who do not own any private property.

Violating HDB rules

The HDB said of the 23,200 owners who are subletting their entire flats with its approval, close to 29 per cent are elderly households.

About 22 per cent moved in with their children, and another 38 per cent moved in with their parents, siblings and other relatives.

Property agents interviewed said private property residents out to make rental income are not the only ones who sublet their HDB flats.

Among them are singles who bought a flat but live with their parents, and young couples who own a new flat but live with their parents because they need their help to look after their children. Others sublet their flats to make ends meet.

In its reply to The Sunday Times, the HDB warned that it has stepped up enforcement against flat owners who flout the subletting rules.

The chief executive officer of real estate agency Propnex, Mr Mohamed Ismail Gafoor, supports the idea that tenants be subject to penalties as well. He suggested that the HDB require owners to show proof of their eligibility to sublet their flats to tenants. ‘If the tenant goes into a contract without verifying the eligibility, the tenant becomes liable too,’ he said.

A spokesman for the Institute of Estate Agents (IEA) noted that many tenants are foreigners working here.

‘They could be warned that if they breach the rules, their work pass might be cancelled,’ said Ms Margaret Chan, IEA’s first assistant honorary secretary.

However, some foreigners may be in a bind because of a lack of cheap rental housing, said Mr Chandran Pillay, senior vice-president at real estate agency Century 21.

‘People have called me saying that even if the flat is not approved for subletting, never mind. They are already here with their wife and children,’ said Mr Chandran, who has rejected such requests.

While low-skilled workers are housed in dormitories, other workers end up sharing a whole flat to split the cost.

The HDB allows up to six people to live in a rented three-room flat and up to nine in a bigger unit. So three couples renting a three-room flat in Ang Mo Kio for $1,800 a month may still pay $600 each in rent.

The HDB did not directly address the question of taking tenants to task when asked.

Property agents are another group that needs to be regulated, said IEA’s Ms Chan. She reckoned that there are still agents who would agree to help an owner sublet his flat even if he does not obtain HDB approval.

Others may advise owners to lock one bedroom and sublet the rest of the flat without the owners themselves living in it, said Prop-nex’s Mr Mohamed Ismail. The HDB said such a practice is disallowed.

Ms Chan noted that these agents have nothing to lose: They do not need an individual licence to operate, so there is no fear of losing one.

Real estate agencies have also said they have too many agents to be responsible for every one of them.

There are about 1,700 licensed real estate agencies, with an estimated 25,000 to 30,000 real estate agents.

The lack of accountability in the real estate industry will soon change, with a new regulatory framework being worked out by the Ministry of National Development.

It has said previously that the framework would require real estate agencies to take greater responsibility for the actions of their agents, with the possibility of agencies and agents facing disciplinary actions for flouting laws and accreditation requirements.

The ministry told The Sunday Times it would share its plans over the next few months.

Source: Sunday Times, 28 Mar 2010

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