Let HDB landlords enjoy their rent

By Janice Heng, The Straits Times, 12 Jun 2014

WHEN the owner of a Housing Board flat moves to private property, should he be allowed to keep - and profit off - his old flat? This question resurfaced in both the print and online Straits Times Forum pages last month, just as the Government was starting a series of conversations to gather Singaporeans' views on housing issues.

Some felt it was unfair to let well-off property owners use a public flat to get even richer.

This objection goes as far back as 1993, when letters to Chinese daily Lianhe Zaobao decried how private property owners were "profiteering" by renting out their HDB flats - a practice which was illegal then.

The debate gained new life in 2010 when policy changes created an apparent "double standard": HDB flat owners could keep their flat if they went private, but private property owners must sell their home to get an HDB flat.

This led to more objections in the Forum pages, even as the proportion of HDB households owning private properties stayed stable over the last five years, at about 4 per cent.

As of the first quarter of this year, there are 46,637 HDB flats which are approved for rental. Though some of these landlords might be bunking in with relatives, others are living in private property of their own.

Yet the Government itself was once against the idea of owning both a public flat and private property, let alone renting out flats.

For decades, HDB owners had to dispose of their flats if they wanted to buy private property.

This was the case until 1989. That year, those who had bought flats on the resale market were allowed to invest in private property, provided they still lived in their HDB flats.

Private property owners could also buy resale HDB units to live in.

Two years later, in 1991, those who had bought flats directly from the HDB were allowed to buy private properties after a certain period. But they had to keep living in their flat, since HDB flats were built for the purpose of home ownership, not investment, said then Minister of State for National Development Lim Hng Kiang.

Since there was this requirement in place, the move did not contradict the policy of ensuring home ownership via the HDB, he added.

But why let HDB owners keep their flats if they were rich enough to get private property?

One answer is that even if they were not allowed, those who wanted to would do so anyway, but in "a roundabout way", said Mr Lim. For instance, they would sell the flat to a relative, buy a private property, then buy the same flat back.

Since HDB flat owners would attempt to invest in private property anyway, the rule was meant to make it easier to do so, he said. Like the earlier relaxation for those who had bought resale flats, this move was meant to give HDB home owners more investment opportunities.

But throughout this period of changes, one rule remained: Anyone who owned an HDB flat had to live in it, even if he owned a private property.

In 2003, this policy of owner-occupation was relaxed. HDB owners who had lived in their flat for at least 15 years could sublet the entire unit.

Previously, subletting was allowed only under special circumstances, or for those aged at least 65 who had lived in three-room or smaller flats for at least 25 years.

The Government had changed its mindset regarding what an HDB flat should be, accepting that it could act as a source of income.

But in 2010, amid a shortage of public housing, the rules grew stricter. Private property owners had to sell their property if they bought a resale HDB flat.

Then National Development Minister Mah Bow Tan said this was to reinforce the principle of owner occupation, as well as to reduce competition that first-time buyers faced for resale flats.

Should the Government go further, returning to the old days of making HDB owners dispose of their flat when they go private?

One argument in favour is that it would increase resale supply.

Forum writer Tan Suan Jin made this point last July, saying that those "who have moved on from public housing should make the units available for those who are still struggling to own their first HDB flat".

But this applies only when the resale market is short of supply. Since Mr Tan's letter, the market has cooled.

Says R'ST Research director Ong Kah Seng: "There is no need to inject more supply of resale flats... in the current context of cooled resale flat sentiments."

Second is the philosophical objection to letting owners profit from public flats meant for those who cannot afford to go private.

As Forum writer Liew Eng Leng argued last month, letting well-off owners use their flat to get richer "is akin to commercialising a public good", and could worsen inequality, he added.

However, if the issue is one of public good, then the objection applies only to subsidised flats bought directly from the HDB or, after 1994, resale flats bought with government grants.

Resale flats bought without grants enjoy no obvious subsidy.

Furthermore, the principle that subsidised flats should be only for those who need them is already enforced - at the point of purchase, when an income ceiling applies.

Then the next question arises: Should subsidised flats be reserved for the less well-off even after they are purchased?

Well, if a household gets richer and busts the income ceiling after buying an HDB flat, the owners are not required to sell their HDB flat and move to private property. Otherwise, flat owners would feel penalised for having become wealthy after their purchase.

In any case, there are good reasons to let HDB flat owners who move on to private property keep their flats.

They provide a steady supply of flats for the rental market. And some flat owners, such as retirees, need the rental income.

National Development Minister Khaw Boon Wan pointed out as much when talking about the purpose of last year's Our Singapore Conversation housing series.

Those angry that some families live in private property while renting out an HDB flat may come face to face with a retiree who relies on precisely that for income, noted Mr Khaw.

"So there will be people who say: 'Hey, it's not fair, right?' But the condominium owners will say: 'No, it's very fair, right?' So let's put them in the same room and let's hear them out," he said.

If anything, the fact that Singapore's system allows public housing to become a source of wealth is praiseworthy, says Mr Ong.

Many Asian cities face the problem of providing sufficient housing. In contrast, in Singapore, "flat owners are able to get more than a mere shelter".

The current rules strike a balance between the public and personal roles of the HDB flat: ensuring that they are bought as homes, but allowing them to mature into assets.