Friday 27 July 2012

PRs in the HDB market: Boon or bane?

By Rachel Chang, The Straits Times, 26 Jul 2012

THE Housing Board's recent move to make it harder for permanent residents (PRs) to sublet their flats was a milestone of sorts.

For the first time, PRs - who own some 5 per cent of HDB flats - were singled out for some restrictions in the resale HDB housing market.

Of course, the HDB resale market has never been a purely level playing field for non-citizens. For one, PRs do not get the concessionary loans and grants that Singaporeans do. And when it comes to estate upgrading projects, they have to pay the full cost, unlike citizens.

PRs have also been disproportionately affected by some measures to cool the public housing market over the last few years.

Take the sweeping policy in 2010 that anyone wanting to buy an HDB flat would have to get rid of their private property, including any held overseas, within six months of their flat purchase.

PRs obviously bore the brunt of this, since many have property in their home countries. Still, it was a blanket rule affecting all HDB owners - citizens and PRs - equally. The idea was to discourage people from viewing public housing as an investment.

PRs were first allowed to buy HDB resale flats in 1989. The rationale then was to liberalise that segment of the market and enable flat-owners to realise the full value of their assets. The change also aimed to encourage more PRs to commit to Singapore by making it easier for them to own a home here.

As a group, the PR flat-owners have not been explicitly targeted with a circumscribed set of rights - until now.

The new subletting rules announced earlier this month hit only PRs. They can now rent out their flats for a maximum of five years, and yearly approval is required within this period.

Before the change, both PRs and citizens could apply to sub-let their flats every three years, with no cap on the number of years they can rent out their flats.

For citizens and PRs, sub-letting can only be done after the buyers have lived in the flat for a minimum occupation period, ranging from three to five years. This remains unchanged.

While the new rules for PRs were announced without fanfare - a simple press release appeared on HDB's website in the morning, without any accompanying comment from any of the Ministry of National Development's blog-happy office-bearers - the move is a significant one.

Instead of treating all HDB resale flat owners the same, it tilts the scale considerably against a non-citizen. PRs' ability to monetise their housing asset through rental income is now curtailed by sole virtue of the fact that they are not citizens.

Many Singaporeans would say that is exactly the way things should be, and that the move was overdue. Citizenship comes with privileges, and the ability of PRs to make money from public housing flats has been a simmering, toxic one for many years now.

The numbers are small: only 2,142 flats are currently being rented out by PRs, less than 5 per cent of the PR-owned flats. But it has been a perennial source of resentment for some Singaporeans, say politicians.

After all, the social function of HDB flats - to affordably house a population - is still seen as paramount. As for the secondary benefit of profiting from public housing, one prevailing view is that this privilege should be reserved for citizens.

But there is an irony in this line of reasoning: Singaporean flat- owners after all have benefited from the surge in demand from PRs who, as of 2010, formed one in five buyers.

While the Government has valiantly tried to dispel the notion with facts and figures, the perception that PRs pay more for flats and can fork out bigger cash premiums still persists.

Many a property agent will tell you that the 'PR effect' has helped push prices upwards, inflating all HDB assets - 95 per cent of which are owned by citizens.

On the flipside: tales of PRs getting rich through rental income while they enjoy the lower cost of living in their home countries have proven equally insidious.

With its latest move, HDB is attempting to stem such scenarios, without affecting the positive role that PRs play in the resale market - a difficult balancing act to pull off.

In the aftermath of the subletting changes, for example, some online commenters immediately asked why the Government did not just go the whole hog and prevent PRs from sub-letting HDB flats altogether.

If the principle is that PRs should not be buying a public housing flat for investment income, then there is no reason they should be allowed to rent it out at all.

Should overseas work secondments or other such circumstances crop up requiring PRs to rent out their flat, they can be dealt with through case-by-case special dispensations from HDB, went the argument.

But going down this route risks driving many PRs away from the resale market altogether, since a purchase decision often weighs the possible rental income from a property. And if the PR group of buyers does shrink, so will the market disinflate.

Some Singaporeans argue this is not an undesirable state of affairs, though others who stand to profit from the rise in flat prices will probably disagree.

The latest move by the Housing Board has opened the door to such uncomfortable debate.

At the heart of the issue is the question of whether HDB flats should remain primarily housing units for shelter or whether they should be aggressively transformed into assets of value for Singaporean households.

If the former is paramount, the latest move is in the right direction. If the latter, any measure that denies equal rights to PRs over their resale flats is imprudent, as it ultimately shrinks the pool of buyers.

Even if they own only a small percentage of total HDB housing stock, PR buyers produce a part of the churn without which the market would be more stagnant.

But if resale flats become too attractive to PRs, the market could over-heat and annoy citizens, especially those yet to own an HDB flat - a scenario that arguably has already played out.

Ultimately, it all boils down to the fundamental question of the purpose of HDB flats.

But whether they serve the social function of providing for citizens first or the economic goal of asset enhancement, the intention behind both roles is the same. It is to root Singaporeans to the country. But they involve different considerations and trade-offs. They also imply different views of what PRs are entitled to when they buy a piece of public housing.

For now, HDB has made the calculation that restrictions on PRs are called for, perhaps to placate citizen flat-owners.

And it is no doubt also banking on the fact that the latest change in rules is minor enough not to unsettle the HDB resale market, since few PR flat-owners will be affected. Any outcry from such a small number may also be muted and largely go unnoticed.

A tenuous balance has been struck on the issue of keeping the resale market open to PRs, while denying them equal rights over their property. Whether it will hold remains to be seen.


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