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Are HUDC flats good investments?

By Stella Thng

Larger and relatively more affordable than private condos, HUDC apartments offer HDB upgraders a viable alternative to executive condos and private property. But are they good investments? Here are four facts about them.

1. MOST HUDC PROPERTIES ARE NOW CONSIDERED “PRIVATE CONDOS”

Consider HUDC (Housing and Urban Development Company) flats the predecessors of executive condominiums. First built in the 1970s and 1980s by the Housing Development Board (HDB) to give middle-income home buyers an option between HDB flats and private properties, some examples of HUDC flats include Farrer Court, Laguna Park, Lake View Estate, Pine Grove and Chancery Court. However, they were phased out in 1987 when demand dipped.

In 1995, the government announced a privatisation programme to allow HUDC estates to be “upgraded” to private property status. When HUDC estates are privatised, residents pay up a lump sum (capped at $30,000 each and payable with CPF funds) which covers the cost of common property transferred to the owners, the legal costs, surveying, and other processing fees. Owners thus get full say on how to manage the estate, a la private condos.

Of the 18 HUDC estates in Singapore, all except Braddell View have either been legally privatised (12 of them), obtained at least 75 per cent support from residents and are in the process of privatisation, or have announced their privatisation plans.

The 30-year-old Braddell View, however, faces unique challenges. Perched on a scenic hill, it was built in two phases and on different state leases. This means the expiration dates of the leases (and thus the value of the units) also differ. To move ahead with privatisation requires the older lease on the first land parcel to be topped up. However, it is difficult to agree on a fair figure concerning how much each owner should shell out. Until the residents can agree on how to move on, privatisation – and potentially lucrative en bloc plans in the future – will just have to be put on hold.

 

2. HUDC FLATS ARE COMPETITIVELY PRICED

Sherry Tang, a senior sales director at DTZ Property Network, says that most buyers are HDB upgraders who like the spaciousness of HUDC flats. “Of my clients, half are buying it as a home, although they’re also attracted by the investment value. The others are investors,” notes Sherry, who brokered the record-breaking $1.28m HUDC flat at Shunfu Ville in July 2012.

Buyers include elderly couples, yuppie couples, young families and even singles. “I recently sold one to an investor, a single who intends to rent it out; it can fetch up to $3,500 per month,” she says.

Many of these HUDC estates are in favourable locations, and thus popular with buyers. The privatised Shunfu Ville, for example, is within walking distance of Marymount MRT station, minutes away from town, and surrounded by good eateries. HUDC units, which tend to be larger than the new condos, are also more competitively priced.

At Hougang Ave 2, a 1,722sqf HUDC executive maisonette currently being privatised is marketed at just $1.05m or $609psf – lower than some of the smaller $1m HDB flats around. Similarly, a roomy 1,679sqf executive apartment in Serangoon North Ave 1 is going for $1.35m, or just $804psf. Once privatisation is complete, their values are expected to rise.

A 1,270sqf three-bedder at the alreadyprivatised Normanton Park is pricier at $1.25m (from about $1,000psf). But in comparison, a 1,259sqf unit at the nearby Interlace is going for $2.2m. This makes privatised HUDC flats a good choice for those who need more living space but can’t afford sky-high private condo prices.

 

3. HUDC FLATS AREN’T SUBJECT TO HDB’S MINIMUM OCCUPATION PERIOD (MOP) RULE

It is relatively easy for anyone to buy a resale HUDC flat as there isn’t any income restriction on buyers, unlike with new HDB flats. Buyers aren’t eligible for subsidised financing from HDB, and must apply for a bank loan to finance the flat. HUDC owners can also buy and sell anytime they want – subject to the usual Seller’s Stamp duty of 16 per cent for the first year, 12 per cent for second year, and so on.

They can also rent out the whole unit right from day one; they do not have to observe HDB’s Minimum Occupation Period rule of five years nor seek HDB’s permission to do so. Some HUDC estates already offer condo facilities such as a swimming pool and barbecue pit; others add these after privatisation. Since tenants are generally unconcerned about the categorisation of the property as an executive condo, privatised HUDC flat or a “proper” private condo, it makes sense for investors to buy the cheapest property possible to gain the maximum rental yield.

 

4. THEY OFFER GREAT EN BLOC POTENTIAL (AND POTENTIALLY HANDSOME CAPITAL YIELD)

So far, five HUDC estates – Amberville, Farrer Court, Gillman Heights, Minton Rise and Waterfront View Estate – have already undergone an en bloc sale, earning residents a pretty penny. In 2006, Amberville made history as the first former HUDC estate to be sold collectively. It fetched $183m and netted each homeowner about $1.089m (said to be at least 85 per cent above the market rate at the time). Capitaland then acquired Gillman Heights in 2007 for $548 million. Based on a $363 per square foot per plot ratio, residents were compensated between $880,000 to $950,000 per unit. It is now the site of the Interlace condominium.

In the same year, Farrer Court was sold for $1.34 billion to Capitaland, which turned it into d’Leedon, a condo project due for completion in 2014. Farrer Court owners received a whopping $2.15m each. Judging from these jaw-dropping prices, HUDC flats do seem to offer good bang for your buck and great potential for capitalyield. However, the sellers are all too aware of it, too – at Normanton Park, some homeowners are asking for $1.65m for their 1,270sqf unit. Even Braddell View, despite its tricky position, is calling for $1.42m for a 1,615sqf unit – on a par with or even higher than prices at the legally privatised Shunfu Ville.

If you are thinking of buying, do remember that these estates are at least 25 years old so expect the usual wear and tear. If the HUDC flat you’re eyeing is undergoing privatisation, you, as the new owner, must bear all costs. Weigh the pros and cons before you jump on the HUDC bandwagon; after all, buying a property, no matter how much of a bargain it seems, is an expensive deal in Singapore.

 

POTENTIAL PROBLEM ALERT:

Owners of the recently privatised Shunfu Ville felt the heat when a 20m-long pathway that cuts through their estate became a source of unhappiness in the Thomson neighbourhood. In mid-April 2013, Shunfu Ville fenced up its area after it was privatised. This caused 110 residents from nearby Thomson Garden to complain to their Member of Parliament. They had been using the pathway for years as a shortcut to a bus stop, kindergarten, Shunfu market and Marymount MRT station, and were upset that they now had to take a 500m detour. The neighbourhood committee also proposed some solutions, which included keeping the pathway open for a number of hours during the day. As Shunfu Ville’s management committee had not yet been set up, nothing could be done – although some residents felt that these proposals could compromise the estate’s security. As more HUDC estates are privatised and “public” common spaces become gated areas, HUDC owners may have to face more of such neighbourly squabbles in future.

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