Do new HDB rules against PRs subletting flats reveal alarming trends?

Statistically speaking, only around 2K or barely 0.2% of the 890K HDB flats are owned by PRs and are being rented out but here’s possibly why the government made such a fuss over it.

Singapore Permanent Residents (PRs) will now be faced with greater inflexibility regarding the subletting of their public flats. Under the new rule, rental period will be capped to one year, with any applications for extension to be approved on a case-by-case basis. Additionally, the total period for PRs to sublet their flat will be bounded to a maximum of five years.

Here's what analysts had to say:

Kok Keong Tan, Director, Research & Consultancy, OrangeTee

Prior to this new regulation, both Singaporeans and PRs could apply to rent out their flat for three years with no restrictions on the period of subletting or the number of renewals. With shorter rental periods, the HDB subletting market could see an increase in new leases and renewals upon a quicker expiry period. Thus, there could be more volatility in HDB rents amidst a fast paced rental market.

Additionally, a “two- tier ownership” may also arise between owners who are Singaporeans and PRs. Price-sensitive tenants who are here for a longer stay may prefer to rent a flat from a Singaporean to ease any concerns on rental fluctuations and unsuccessful renewal applications.

However, HDB data has released that as of April last year, only 4.0% out of the 49,190 flats owned by Singapore PRs are currently subletting their flats. Therefore, a defined “two-tier ownership” scenario and impact on HDB rents might be minimal. Rather, the new regulations implemented are served as a check to ease citizen's concerns of PRs utilizing their flats as an investment tool.

Eric Tng, Senior District Director, ECG Property

For HDB to restrict PR subletting activities, I suspect there must be a substantial number that is doing so. Personally, I have encountered cases which the HDB (PR) owner has returned to his country of origin and kept his HDB flat for rental income.

A simple calculation (a three room HDB flat selling for $350k and fetching a $2k monthly rental) tells us that the rental yield for a HDB flat can be easily over 6%. That is a good investment return not withstanding the capital gains made when sold in a bullish market.

With the new rules, I don’t see an immediate impact on HDB prices. Those PRs who have bought HDB as an 'investment property' will have to see out their current lease agreement before deciding on their next course of action.

I feel it is a move to further distinguish the benefits of being a Singaporean and PR.

Thomas Tan, analyst, Remax

This is a deliberate move by the government to send a reminder to PRs residing in Singapore that HDB resale flats is primarily meant for occupation, not as an investment engine. Anyway, less than 5% of the PR HDB flat owners sublet their flats, so it is not an alarming statistic for now. However, the government must have noticed this increasing trend and put this pre-emptive measure in place before things get out of hand.

Personally, this move is not surprising as the Ministry of Manpower also announced that from 1st September, work pass holders will have to meet tightened criteria in order to sponsor their dependants so as to ease the pressure on our infrastructure.

Rental demand for HDB flats (which are more affordable compared to private properties) always come from work-pass holders (and their dependants), hence the measure will complement HDB’s ruling and moderate the overall growth of Singapore’s non-resident population.

These measures will moderate and stabilise the rental rates of HDB flats as both the supply (from the PRs) and the demand (MOM’s policy) are put in place. Beneficiaries to these measures will be Singaporean owners, whose hearts the government are eager to win.