How to Legally Rent Out Hong Kong's HOS Flats?
In Hong Kong, finding affordable rental housing is not easy. The under-the-table market is a common way people think of to find cheap rentals. But do you know if renting under-the-table is illegal? What are the conditions for renting or selling public housing? How can one legally rent or sell public housing?
Hong Kong's Rental Under-the-Table Market
In Hong Kong, the so-called 'rental under-the-table market' mainly refers to renting out public housing, or Home Ownership Scheme (HOS) flats without paying the land premium. These 'under-the-table' rentals are usually conducted through online forums, private contacts, or word of mouth. If caught renting out such properties in violation of regulations, both landlords and tenants can breach the Housing Ordinance.
Does It Illegal to Rent Home Ownership Scheme Flats?
According to the Housing Ordinance, illegally subletting public housing or HOS flats without paying the land premium is against the law. Convicted individuals could face a fine of up to HK$500,000 and a maximum of one year in prison.
The Hong Kong government established public housing and HOS flats to provide housing opportunities for the grassroots population. Public housing cannot be sublet. HOS flats, primarily sold at a discounted price for self-occupation, are typically priced at 40% to 60% of the market price. To rent or sell HOS flats, owners must first complete a no-sale period and pay the land premium to the Housing Authority. Otherwise, both landlords and tenants face legal risks when renting under-the-table HOS flats.
Restrictions and Conditions for Renting Out HOS Flats
No-Sale Period
HOS flat owners must adhere to transfer restrictions before selling or renting their property. Here are the regulations for different years:
- HOS flats from 2017 and earlier: Available for sale on the secondary market after 2 years of initial purchase; no waiting period for the open market.
- 2018 HOS flats: Available for sale on the secondary market after 2 years; 5 years for the open market.
2019 and later HOS flats: Available for sale on the secondary market after 2 years; 10 years for the open market.
- After the no-sale period, owners wishing to rent or sell on the open market must pay the land premium and obtain a 'Letter of Removal of Alienation Restriction' from the Housing Department.
Paying the Land Premium
The amount depends on the current unit value and the discount rate at the time of purchase, plus a handling fee of about HK$6,230. For example, if the market value is HK$1,200,000 at the time of paying the premium, and the original price/discounted price was HK$600,000, the land premium would be HK$480,000, plus a handling fee of approximately HK$6,230 to the Housing Department.
If HOS flat owners have a mortgage, they must obtain the bank's consent before renting out. The bank may adjust mortgage terms, such as increasing the mortgage ratio and stress test requirements. Owners must pay about HK$500 to HK$2,500 to obtain a 'Bank Consent' for renting. Only after completing these procedures can HOS flat owners legally rent out their units in the open market.
How to Legally Rent Out Unpaid Premium HOS Flats?
HOS flat owners in Hong Kong who haven't paid the full price difference can rent their properties through a special scheme managed by the Housing Association (HA). This scheme, named 'Letting Scheme for Subsidied Sale Developments with Premium Unpaid,' aims to rent these HOS flats to those waiting for public housing.
Participating in this program involves a series of application procedures, including filling out forms and passing reviews. Most subsidized sale housing provided by the HA or the Housing Committee applies to this service. Applications can be submitted online, by mail, or in person, and the process usually takes about a month to complete. Additionally, owners need to pay a HK$200 application fee, and tenants, HK$100.
Owner Application Conditions:
- Must be the registered owner or co-owner of the HOS flat; 2. Owned the property for over 10 years; 3. The HOS flat has not paid the land premium.
Tenant Application Conditions:
- At least 18 years old; 2. Registered on the Housing Committee's public housing application list for over 3 years (for general families) or over 6 years (for non-elderly single persons). 3. Once approved, owners and tenants can use the HA platform to match and find suitable rental partners. If the HOS flat has more than two rooms, owners can choose to rent the entire flat or individual rooms, flexibly utilizing space.
Beware of Online Under-the-Table Rental Offers
HOS flats for rent are usually advertised on online platforms, and most property agents choose to avoid these transactions to avoid legal involvement.
In various online forums, there are open solicitations for such 'under-the-table' rentals, and some even suggest converting unpaid premium HOS flats from sale to rental. However, on most real estate rental and sales websites, it's rare for listings to specify whether the unit has paid the land premium, and those looking to rent seldom ask.
As tenants or buyers, they have the right to request the 'Letter of Removal of Alienation Restriction.' To avoid renting or purchasing illegally unpaid premium HOS flats, tenants should verify the availability of this certificate by checking the property registry before signing a contract.
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