A crafty property investor came up with a “foolproof” scheme – buy a new public housing unit, rope in a dodgy estate agent and then blatantly ignore HDB rules to rent it all out. What could possibly go wrong?
Pretty much everything, as it happens, even though it does provide the rest of us with a fine example of penny wise pound foolish behaviour.
The owner of the five-room HDB flat thought he could circumvent the Housing Board’s minimum occupation period (MOP), which is five years for most flats, because he found a real estate agent willing to go the extra mile.
The rogue agent even submitted a false tenancy agreement to try to cover up the deed.
But the ruse was exposed barely a month after the tenants moved in, and the guilty parties faced severe consequences – the owner’s flat was re-possessed by the HDB while the rogue agent was fined and suspended by the Council for Estate Agencies (CEA).
Cases involving professional misconduct by estate agents are highlighted on the CEA website and also serve as cautionary tales to homeowners because they offer important lessons that can safeguard your investments.
For instance, it is foolish to think you can hoodwink the authorities by using false and misleading agreements and assuming no one will check every line.
With most of these documents now filed online, it is even easier for the authorities to detect any infraction by simply putting in place a system to flag suspicious cases.
For instance, it is compulsory to pay a levy for all tenancy agreements so that they can be deemed to be valid. No tenant or landlord should avoid this process because they risk losing a lot if either side chooses to renege on the deal.
Since such data is already known to the authorities, it is easy for the HDB to detect cases of illegal rental, especially when it involves owners who have yet to fulfil their MOP.
Indeed, past cases show that enforcement action can come fast and furious – within weeks of the offences being committed.
Owner who lost flat over illegal rental
This flat owner had three bedrooms so he could rent out two legally while he continued to live in the remaining room. After all, this is the purpose of the minimum occupation rule, which required him to live in the flat for at least five years from August 2018 when he bought it.
But in May 2019, the owner contacted an agent to lease out his entire flat, a breach of the rule by over four years. Despite this, the agent went ahead to market the flat and a couple, who were foreigners, turned up for the viewing sometime in August.
The couple agreed to rent the flat after being assured they and their children could “use the entire flat”.
When it came to signing the tenancy agreement, the couple were concerned that they were signing one for “room rental” when they wanted to rent the entire flat and not just two bedrooms. But the agent assured them that they could use all the rooms, adding that they could ignore the wording of the agreement as it was just a “formality”.
After the agreement was signed, the agent applied to the Inland Revenue Authority of Singapore to stamp and validate it. In doing so, she made a misleading declaration, namely that the flat was partially leased out when the tenants had the whole unit to themselves.
Shortly after the tenants moved in, the owner received a letter from the HDB, in September, which reminded him that it was a breach of the terms and conditions if he did not live in the flat or was letting out the whole unit without written approval.
Days after receiving that letter, HDB officers turned up at the flat and found that only the tenant and his relatives were living there. Subsequent inquiries confirmed that the owner did not live there and that the tenant had rented the whole flat.
As a result, the tenant and his family had to vacate the following month. They suffered great inconvenience and lost money as they had to search for a new home and move within a very short period.
The flat was later compulsorily acquired by the HDB while the agent was suspended for four months and was made to pay a penalty plus legal costs of $7,000.
Owners fined $45,000 for breaking HDB rules
Between 2018 and 2022, the HDB caught around 150 flat owners for investing in private homes even though they had lived in their own flats for less than five years.
Most were either ignorant or were wrongly advised by estate agents that there was no restriction for purchases under trust schemes since they were supposedly not buying the properties for themselves.
In one of these cases, a couple who had lived in their HDB flat for only three years wanted to invest in a private home even though they were not allowed to do so for another two years.
But they were advised by their estate agent that they could buy the extra property by putting it on trust for their infant child. The agent further convinced them that this would not be in breach of HDB’s rules because the child would be the beneficial owner of the extra home.
The couple did not know that they were fed inaccurate information by the agent because HDB rules state that an owner who is still under the MOP cannot buy any private home, even if it is to hold on trust for another person.
The couple, unaware of this, went ahead and bought a condominium unit. The agent received half of the sales commission, or $7,000, as the developer also had employed another agent.
In February 2020, the HDB notified the couple that they had infringed MOP rules when they bought a private home within the prohibition period and could have their flat repossessed by the HDB or be fined.
In the end, they were ordered to pay a penalty of $45,000, payable in a lump sum with a cashier’s order.
The agent was found guilty of failing to conduct his business and work with due diligence and care when he wrongly advised the couple that they could buy the extra home on trust for their child during the flat’s MOP.
He was suspended for six months and was ordered to pay $10,000 in penalty and legal costs.
Information concerning the rental and purchases of HDB flats as well as stamp duties payable for investing in properties can easily be found on the relevant agencies’ websites.
When dealing with a valuable asset, it is prudent for all owners to check the relevant rules so that they are not totally ignorant and liable to be misled by agents who fail to do their homework.
As these cases show, you can end up paying a high price if you are caught doing something that can be avoided if you had bothered to do your own checks.
“Source:[Owner loses 5-room HDB flat after renting it out illegally] © Singapore Press Holdings Limited. Permission required for reproduction”
