Khaw’s conundrum in HDB housing

HDB FlatsA baby step for Khaw Boon Wan, a giant leap for singles — even if it comes with a restrictive set of criteria. I know that’s giving the minister too much credit for a long overdue move, but who can blame him for being so cautious? Whatever major policy change the government enacts on the HDB front is bound to draw flak from certain quarters of the citizenry. A baby step too slow for some is a baby step too far for others.

If the minister needs a lesson, he can just look at the recent move by MAS to curb vehicle loans. The intention was good, but, alas, the road to political hell is paved with good intentions. After complaints from MPs, families with kids, the disabled, car dealers and their dogs, the authority has been forced to backtrack on certain fronts, such as granting exemptions for the disabled and extending the period car dealers are allowed to own used cars. One can only wonder if there had been any consultation with stakeholders and the public outside the authority’s Shenton Way bronze tower before the sudden announcement.

There have been consistent calls on the government to stop the practice of allowing HDB flat owners to collect rent on their flats after upgrading to private properties. Most agree that it limits the supply in the resale market, which is a contributing factor to the current sky high prices. It also led to questions on the role of public housing that is making Mr Khaw lose sleep over. While I have not seen anyone publicly defend the practice, perhaps because they are all quietly and happily reaping the fat rental income, it doesn’t mean we won’t get some outcry should the practice be outlawed.

Mr Khaw appears to acknowledge the problem as well, but he is also afraid of the rental market collapsing. There are currently about 40,000 HDB flats being let out as a whole unit, and about an equal number of units with partial sublet. The minister has said, “There are something like 80,000, 90,000 families out there – which is a lot – who are depending on rental income. So they will suffer, for example, if there is a collapse in the rental market.” He seems especially concerned about seniors who depend on this rental income for their retirement needs.

Even if we may not agree with protecting these owners at a high cost for the rest of us, the minister does have a point of not causing shock to the system. Forcing these owners to sell will create another problem in that the supply of flats in the rental market will shrink drastically.

Remember that PRs are now subjected to higher Additional Buyer’s Stamp Duty from the latest round of cooling measures, making it harder for them to purchase a HDB flat and more likely to turn to renting. From the announcement last week, there will also be new quotas on renting HDB flats to foreigners to prevent enclaves from forming. Along these was the news that JTC is phasing out its rental scheme for housing of foreign talent. So if all those HDB owners are forced to sell, where are these foreigners and PRs going to find a place to rent?

But there must be a solution that will minimise the immediate impact to the market. For example, we can limit the number of years owners can hold on to their HDB flats after upgrading. The period should be sufficiently long enough, say 5-10 years or a typical property boom bust cycle, so that they won’t be forced to sell in a down market. By allowing owners to choose when to sell within a certain period, it will also help to moderate the market when high prices prompt more owners to sell, lest the market crashes when their deadline is up. Current and future property ladder aspirants will also not be deprived of benefiting from this  completely.

There are also suggestions of increasing the minimum occupation period, to ten years perhaps. How does that help anything? I have argued before that the MOP causes buyers to over-leverage. Young couples go for bigger flats than they need, such as 5-rooms, for fear of outgrowing the space with kids in coming years. Increasing the MOP will only make it worse. As with all other types of markets, one with greater volumes of buying and selling is healthier. We only need to look at the current lack of supply to know the problem with further stifling the market with a higher MOP. Not to mention the increasing number of sob stories the HDB has to tend to in appeals to sell early.