Landbanking Subjected To HDB Rules
Yes, that’s right, landbanking is considered as a private property according to The Sunday Times. The 26th September 2010 edition of The Sunday Times ran a report – HDB rules apply to landbanking, highlighting that “An interest in residential land, even on vacant land, does constitute ownership of private property“. Under the current HDB rules, HDB owners are not permitted to hold a private property and private property at the same time within the Minimum Occupation Period (MOP) of 5 years.
There are a couple of technical issues related with this ruling on landbanking. First is the zoning of the land. The key here seems to be Residential. Meaning to say, if the land is zoned for other uses, eg industrial use, then the HDB ruling does not apply. If this is true, then we can expect to see ‘non-residential landbanking’ projects soon.
The next technical issue is how will other forms of property investments be affected? My personal opinion is that if the investment is through a from of security as as a unit trust (Collective Investment Schemes) or Reits, HDB rule does not apply as there is no direct holding of land. According to the MAS Moneysense Consumer Portal for Landbanking, “Land banking which involves investors acquiring direct interests in real estate rather than securities (such as collective investment schemes) related to real estate is not regulated by MAS.“. So as long as there is no direct holding, it is fine to invest in private property.
As highlighted by the Moneysense website, landbanking is not a Collective Investment Scheme (CIS). In the United Kingdom, landbanking is regarded as a CIS and CIS is under the jurisdiction of the Financial Services Authority (FSA, the equivalent of our MAS here). In order to operate as a CIS, the scheme has to be authorised by FSA. However, no landbanking firm has done that and thus landbanking may be seen as a ‘illegal’ CIS with no protection from FSA. In June 2008, FSA asked the High Court to close down UKLI, the largest landbanking company in the UK.
In Singapore, landbanking is too not regulated by the MAS. Thus investors are not protected under the Securities and Futures Act (SFA) and Financial Advisers Act (FAA). In The Straits Times report on 14th May 2010 (200 lose $6m in British land deals), the MAS was quoted as saying “Land-banking investments involve investors acquiring direct interests in real estate rather than in securities related to real estate and as such, fall outside the scope of the FAA and SFA.”.
Do not say you have not been warned.