Sep 26 2010

HDB rules apply to landbanking

Interest in residential land, even if vacant, constitutes ownership of private property
Housing Board flat owners who want to invest in land abroad through landbanking companies will now have to think twice before parting with their savings.

The HDB has confirmed with The Sunday Times that they will be caught out by Singapore’s new property rules, which state that HDB flat owners are not allowed to concurrently own an HDB flat and private property – local overseas – within the minimum occupation period (MOP).

An interest in residential land, even vacant land, does constitute ownership of private property, the HDB said last Friday.

This means that if a landbanking investor who has a share of residential land buys an HDB resale flat on or after Aug 30, he must dispose of one of those properties within six months of the purchase.

It also means that an HDB flat owner can enter into a landbanking investment that involves residential land only after the MOP of five years.

An HDB owner yet to meet his MOP will therefore need to be careful when investing in landbanking firms, as he might have to dispose of land initially not zoned residential if it later acquires residential zoning.

But the HDB has also acknowledged that there may be small groups of people who require special consideration and is willing to help them.

‘The HDB will need to look into the specifics of such cases, and evaluate whether the interest in the land is substantial enough to be considered private property ownership. They can write to us with the necessary documents and details of their appeal,’ it said.

Landbanking firms buy large plots of land and subdivide them into smaller parcels to sell to investors.

These firms usually tell investors they can buy undeveloped plots of rural land overseas. When development plans are drawn up, investors are told they can sell their plots to developers who are willing to pay higher prices to secure the land.

For example, Canadian-based Edgeworth Properties, which has about 2,000 Singapore clients, of which about half are HDB flat owners, is offering investors the option to buy 7,260 sq ft – or one-sixth of an acre – of land in Alberta, Canada, for about $15,000.

This plot, however, already has an area structure plan that establishes the general planning framework for future development.

Walton International, a Canadian-based landbanking firm, said it was too early to comment on the effect the new rules would have on its business. But it added that it was discussing the matter with the HDB.

Another landbanking firm, which declined to be named, expects to be unaffected by the new rules.

It said half of its land parcels were sold to developers ‘within months’ of zoning approvals being obtained. This means that investors exited very soon after a piece of land was zoned residential.

The remainder were fixed-term, fixed-return contracts that would see investors getting their payouts before any homes are built on them.

But while the effect of the HDB’s ruling may still be unclear, some landbanking investors are questioning its rationale.

One investor, who wanted to be known only as Mr Lim, said landbanking should be seen as a real estate investment scheme rather than as having an interest in private residential property.

‘We are at the very early stages of the real estate life cycle, before even any dwellings are built… It is more of an investment where you get in and then get out. I don’t think landbanking should be covered under HDB’s rules,’ he added.

Mr T.H. Tan, who has been approached to invest in land through landbroking firms in the past, added: ‘What happens in six months’ time if the private property investment cannot be disposed of, maybe due to a lack of takers? What is the Government going to do to help these people?’

Mr Christopher Tan, chief executive of financial advisory firm Providend, said that with most Singaporeans living in HDB flats, and the investment quantums involved in landbanking not being very large, the majority of landbanking investors could well be HDB dwellers.

He disagreed with the HDB’s ruling as it would not help to cool down the property market, but he added: ‘This is one more reason for investors to be more cautious when investing in landbanking, since there are even more grey areas and unknowns to navigate now.’

Source: Sunday Times, 26 Sep 2010

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