Source: HDB, EdgeProp
For three-room flats, Block 24 Balam Road is the highest yielding HDB block with a yield of 10.1% (see Table 1). The 10-storey building in Geylang has a 99-year lease dating back to 1967, meaning that the remaining term of the lease is 44 years. The block comprises about 120 three-room flats.
The block is within walking distance to MacPherson subway station and offers access to the Circle and Downtown lines. Amenities such as supermarkets and hawker centers are also within easy reach. Such amenities make the area popular among foreign renters.
Four-room HDB apartments
For four-room flats, Block 437 Woodlands Street 41 is the HDB block with the highest yield, with a yield of 9.3% (see Table 2). The block’s lease term is 99 years since 1996, meaning there are 74 years left on its lease. It has 12 floors and a total of 114 units of four-room flats. The block is located next to the Singapore American School.
Block 228 Lorong 8 Toa Payoh, meanwhile, is close to the Toa Payoh Industrial Park, which explains why four-bedroom apartments in this block command the second highest yield.
201 Marsiling Drive is located in the Marsiling Admiralty Park HDB estate in Woodlands, close to amenities such as parks, the market and hawker centre, as well as the Marsiling Industrial Estate. These four-room HDB flats are likely to be sought after due to their proximity to workplaces such as industrial parks.
Five-room HDB flats
For five-room flats, the HDB block with the highest yield is in Pandan Gardens, off West Coast Road (see Table 3). The highest yield is Block 407 and the second highest yield is Block 403 Pandan Gardens with rental yields of 7.8% and 7.5% respectively. These two HDB blocks are located next to the Pandan River and opposite the Pandan Reservoir.
They are also close to the riverside Pandan Gardens Leisure Park and are also within walking distance to a park connector that leads to West Coast Park and Clementi Woods Park. Teban Gardens Market and Food Centre are also nearby.
The blocks in Pandan Gardens have been on a 99-year lease since April 1979, meaning that there are 56 years left on their lease. The blocks are 12 storeys high and house 112 five-bedroom apartments. The blocks in Pandan Gardens are also close to the Jurong Gateway commercial hub in Jurong East, where the Jurong East MRT interchange station for the East-West and North-South lines is located. Perhaps this is why Pandan Gardens is so desirable as it is within easy reach of all the amenities of daily life such as park links, shopping malls and MRT stations.
Three-bedroom apartments on the outskirts of the city achieve the highest returns
According to our analysis, returns generally appear to be highest for three-bedroom apartments, probably due to lower absolute prices compared to the rents achieved.
The median monthly rent for three-bedroom apartments was $1,705, while the median monthly rent for four-bedroom apartments was $2,059, a difference of only $354.
For HDB-style three-room flats, many of the older blocks built in the late 1960s and early 1970s command the highest rental yields, with leases still running for 44 to 53 years. They are also mainly located on the outskirts of the city, with Geylang being particularly popular and generating the highest rental yields.
In contrast, the HDB houses with the highest returns for four- and five-room flats are located in the mature suburban HDB estates such as Jurong West, Jurong East, Pandan Gardens and Woodlands. This could be due to the lifestyle amenities in the area, from MRT stations to parks, schools, food courts and markets, as well as proximity to workplaces such as industrial parks or commercial centres. Therefore, such four- and five-room flats are attractive to expatriates with families as these flats are more spacious than some of the new private condominiums.
Invest in HDB units?
The higher rental income and lower prices of HDB flats make them an attractive investment for property buyers seeking rental income. However, potential buyers who want to benefit from the high income must be aware of some restrictions. Under current housing regulations, private property owners cannot purchase HDB flats without having to sell their private property on the resale market within six months of purchasing an HDB flat.
HDB flat owners who move to a private condominium can keep and rent out their HDB unit, but only after they have exceeded the five-year minimum occupancy period (MOP) for their HDB flats. They would also need to obtain approval from the HDB before renting out their flats. While owners within the MOP can still rent out individual rooms, they still need to obtain approval from the HDB to do so. This is different from a private condominium, where you have the flexibility to rent out individual rooms or the entire flat. (See: Find HDB flats for rent or sale in our Singapore HDB directory)
“Given the current restrictions on ownership, sale and mortgage lending of public and private housing, it is very difficult for private residential property owners to purchase HDB flats as an investment,” Mak emphasises.
Mak also points out that any HDB flat owner considering purchasing a condominium for owner-occupation while renting out their HDB flat needs to consider the Buyer’s Additional Stamp Duty (ABSD) as well as the Total Debt Service Ratio (TDSR).
“The HDB flat owner has to pay ABSD of 12% of the price of the private condo. Assuming he buys a three-bedroom private condo worth about $1.5 million, he would have to pay ABSD of $180,000. Assuming he could rent out this HDB flat for $2,500 a month, which is quite reasonable, he would have to pay 72 months’ rent just to cover the ABSD,” Mak explains. (See: Discover insightful data on all condos in Singapore with our condo directory)
Since most HDB flat owners take out a home loan with a term of 25 to 30 years when purchasing their HDB flat, many of them usually still have an outstanding loan for the HDB flat when they purchase their private condominium, Mak points out.
“This means that the HDB upgrader would only be able to take out a smaller loan for his private condominium unless he sells his HDB flat. So he would either have to put up a lot of money up front to repay the loan for the HDB flat or make a significant down payment on the price of the private condominium he is buying,” he says.
Nevertheless, Mak believes the outlook for the HDB rental market remains good. “I expect demand for rental apartments to remain robust. With the current high vaccination rate among the local population, the Singapore government plans to open up the economy and allow more foreign talent into the country, which will lead to higher demand for rental apartments,” he says.
Mak adds that the relaxation of social distancing rules could lead to more marriages, which in turn could boost demand for rental flats as couples waiting to move into their permanent homes, such as HDB BTO flats, may opt to rent an HDB resale flat in the meantime. “As the supply of HDB flats for rent is quite inelastic in the short term, the above factors would lead to further upward pressure on flat rents,” he explains.
Check out the latest listings near 437 Woodlands Street 41, Toa Payoh Industrial Park, 201 Marsiling Drive, 403 Pandan Gardens, MacPherson MRT Station, Jurong East MRT Interchange Station.
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