With HDB resale prices rising for the fifth consecutive quarter in 2Q2021, potential home buyers and current homeowners may be looking for ways to maximise the use of their property. Flash data from SRX also indicate that HDB rent prices have increased by 1% in June 2021 from May 2021. With both HDB resale prices and rent prices increasing in tandem, you may be thinking about the potential rental yield of your HDB flat.
Previously, we have discussed the most expensive and the cheapest estates in Singapore, as well as the estates to rent a HDB flat. Today, we will dig into the numbers for the best HDB estates for potential rental yield.
The following calculations are only meant as a guide and would differ depending on our individual circumstances. Do speak to a trusted agent or home loan broker before committing to a home purchase and loan. Assumptions used in the calculations:
- This analysis only covers 4-room HDB flats, the most common flat type
- Mortgage and interest payments are excluded from cost outlay of owning the flat that would be rented out. This is to simplify the calculations as interest rates would differ significantly depending on mortgage or refinancing rates, loan tenure and whether it is a loan from HDB or the banks.
- We are including Buyer’s Stamp Duty into the cost outlay as it forms a significant component of the initial cost and is consistent across all buyers.
- We are not taking other costs into consideration, including lawyer fees, renovation or other expenses
- For rental expenses, we will be taking IRAS’s deemed rental expenses of 15% of gross rent.
- Median resale flat prices for 2Q2021 and median rent prices for 1Q2021 are statistics taken from HDB’s website.
- For calculation of rental yield, the formula used is net annual rental income divided by the cash outlay for the purchase of the property.
Rental Yield For 4-Room Resale Flats In The Different HDB Estates
|Town||4-Room Resale Flat||Buyer’s Stamp Duty||Cash Outlay||Monthly Rental||Gross Annual Rent||Rental Expenses||Net Annual Rent||Rental Yield|
|Ang Mo Kio||$438,000||$7,740||$445,740||$2,200||$26,400||$3,960||$22,440||5.03%|
|Choa Chu Kang||$460,000||$8,400||$468,400||$1,800||$21,600||$3,240||$18,360||3.92%|
Note: price data taken from HDB. As there is a lag in the publishing of resale and rent prices, Q12021 rent prices are used for the analysis. As data for Bukit Timah and Marine Parade are incomplete due to insufficient transaction data, the rental yield is not computed for these estates.
Best HDB Estates For Rental Yield
For new property investors, it may be surprising to know that the rental yield for HDB 4-room flats in most estates are above 4%. The estates that have the highest yield are Ang Mo Kio, Jurong West, Jurong East, Bedok and Serangoon. These estates are known to be mature estates with established facilities, except for Jurong West.
Another observation that may be unexpected is that new estates such as Sengkang and Punggol actually have relatively high rental yields, above 4%. Instead, it is the highly sought-after estates, Central, Queenstown, Bukit Merah, Clementi, Toa Payoh and Kallang/Whampoa that has the lowest rental yield. This is not entirely unexpected given that these are some of the most expensive HDB estates that have not only seen high resale price increase but also some of the most significant resale transactions that have crossed the $1 million dollar mark.
Rental Yield Depends On Your Cash Outlay
Aspiring landlords need to remember that rental yield is determined by two factors: how much you paid for the property and how much you can rent it out for.
Your cash outlay is fixed by how much you paid for the flat. For most of us, we are unlikely to have a cash pile to pay for our HDB flat outright and this means that we would need to take a loan. Assuming that we buy a 4-room flat in Ang Mo Kio for $438,000 (the median price for 2Q2021) and take a bank loan, the loan interest over a 25-year tenure period will total up to an additional $56,400, at 1.3% fixed interest. Once we add in the cash outlay for mortgage interest payments, this would bring down the rental yield from 5.0% to 4.5%.
Additionally, if we renovate the flat for the purpose of renting out, this expense will add to the cash outlay for the property and bring down the rental yield.
For homeowners who have bought their flats at a much lower price will enjoy a higher yield than new home buyers today who are buying their flats at elevated prices. The HDB resale price index shows that current resale prices are near a market price and approaching the height of 2013.
Rental Yield Depends On Rental Demand
While your cash outlay is fixed, your rent is not. Rent prices vary according to demand. Currently, there is a spike in demand for rent because of the delay in BTO construction and an increased need for space due to work-from-home arrangements.
This elevated demand mBay not be sustained in the future when the housing supply situation ease or when the pandemic restrictions are lifted. Additionally, HDB rental demand face competition from condominium rentals, especially in areas where there is a surplus of condo rentals. In a different economic environment, the profile of tenants may change and they may choose to rent smaller units with more luxurious facilities instead of larger HDB flats at a comparable price.
Higher Yield Doesn’t Mean Better Deal
Buying an HDB flat should be more than just looking at the rental yield. In the end, HDB flats are meant for owner-occupation and this is reinforced in multiple ways through HDB’s policies and grants. Instead of focusing on rental yield, potential HDB buyers may want to focus on the areas that matter for their own occupation. After all, you will have to stay there for at least 5 years during the Minimum Occupation Period.
Finally, before you decide to rent out your flat for the rental income, do remember that there are other costs of managing a tenancy. While IRAS has deemed rental expenses to be 15% for tax purposes, the true cost of managing a tenancy may be higher. While you can claim tax deductions for actual rental expenses such as repairs, maintenance, agent’s commission for subsequent tenants, etc, you cannot claim the emotional or time cost of managing a tenancy.
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