Why Malaysians are snapping up HDB flats in Singapore

The Federal Territory of Kuala Lumpur is offering public housing to help those from the lower-income bracket own houses in line with Prime Minister Najib Razak's 'People First, Performance Now' commitment.

Across the Causeway, Malaysian permanent residents (MPRs) in Singapore are snapping up second-hand Housing Development Board (HDB) flats like nobody's business. While there are no official figures on how many HDB flats are owned by MPRs, anecdotal evidence seems to suggest that increasing numbers of MPRs may be buying them.

As there are also no official statistics as to how many MPRs and Malaysians with work permits, S-pass, employment pass and long-term visit pass are in Singapore, it may probably not be too far-fetched to say that there are a few hundred thousand in all.

The cheapest three-room (two-bedroom) HDB flat that MPRs can rent is about S$1,500 (RM3,500). With housing loan interest rates at historical lows in Singapore, the monthly repayment for a S$300,000 (RM700,500) loan is around S$1,200 (RM2,800). So, is it any wonder why it may make more sense for MPRs to buy a resale HDB flat, instead of renting one?

Three-, four- and five-room HDB resale flats are going $280,000 (RM650,000), $370,000 (RM860,000) and $440,000 (RM1.03 million) respectively, with a typical down payment of 20 percent of the purchase price.

Many MPRs have asked me when they can sell or rent out their HDB flats, and when they can repatriate profits from the sale of their HDB flats if they plan to leave Singapore.

Minimum occupation period

An MPR can sell his or her resale HDB flat after a minimum occupation period of just three years. A Singaporean who buys a resale flat with a bank loan, can also sell after just three years.

However, many Singaporeans buy new flats (which MPRs cannot buy), or resale flats with a CPF (Central Providend Fund) housing grant, which require a minimum occupation period of five years. For resale flats with a HDB loan (for which MPRs are not eligible), the minimum occupation period is three years.

Since foreigners do not have permanent residency status yet when they first come to work in Singapore, they need not contribute to CPF.

Thus, unlike Singaporeans and permanent residents, they generally may have more cash to pay for cash-over-valuation because their take-home pay will be higher without CPF contributions, until such time that they become permanent residents and qualify to buy HDB resale flats. Even then, the first two years' CPF contribution MPRs have to pay is lower than that citizens pay.

As for new flats, since a typical build-to-order takes about three years, plus another five years minimum occupation period, it may be about eight years before a Singaporean can sell his or her flat.

Say you want to invest in a property and also need a house to live in. A property developer offers you a private property at a discount of 20 percent, using its unique 'HDB market subsidy pricing' policy. However, it will take three years to build, and you cannot sell it for the next five years. Another developer offers you a similar property that you can stay in immediately (and save on your rental for three years), and allows you to sell the unit after three years.

Which property would you buy? I think the developer offering the “subsidy” may hardly get any customers. However, many Singaporeans are fixated on the notion that a new flat can be purchased at a “discount”.

Imagine you had applied for a new build-to-order flat in 1990 and saw your flat appreciate greatly in value until the last peak in 1996, and then declined in price by as much as 40 percent for the next 13 years. Your headache may have been that because of the minimum occupation period, you couldn't sell when the price was high.

Will Malaysian permanent residents ever have this “headache”? No, because they can't buy new flats. A blessing in disguise perhaps – no need to wait, can buy immediately and sell after just three years, or rent out the flat after three years.

Renting out rooms

Malaysian permanent residents may generally have smaller families as they may not have their parents in Singapore, or may not have children yet.

So, some who buy a flat may immediately rent out rooms in the unit. They can rent out rooms, but not the entire flat - they can stay in one room and rent out the other rooms. Under HDB rules, you are allowed to have up to nine persons living in a five-room (four-bedroom flat). So one can rent out to seven persons, at say S$150 per person.

Some Malaysians may also be accustomed to sharing a flat before they become permanent residents. So, they may be able to pay higher prices for resale HDB flats, because they plan to rent out the rooms for income.

Singaporeans, on the other hand, generally buy flats to live in, without the intention to rent out rooms immediately, as they may generally have larger families, parents and children included. I think most Singaporeans see a HDB flat as their home for life, not a temporary investment.

Singapore's housing policy allow citizens and permanent residents who own private property to buy a HDB resale flat and rent out the rooms immediately, as long as they stay in their HDB flat as well. Can you imagine private property owners being allowed to buy public housing in Malaysia?

These are some of the possible contributing factors as to why HDB flat resale prices are skyrocketing. HDB resale prices rose about 75 percent over the last with years, compared with a lower appreciation in the private property price index.

Download Leong Sze Hian's free ebook (which has a chapter on HDB). Watch Leong Sze Hian's two videos on HDB issues - Video 1 lVideo 2

article written by LEONG SZE HIAN who's late father moved from Kuala Lumpur to Singapore in 1952. Since he was born in Singapore in 1953, there may be some confusion as to whether he was conceived in Malaysia or Singapore. Courtesy of Malaysiakini