Which HDB neighbourhoods fetch the highest rental yields?

By Atiqah Mokhtar / EdgeProp Singapore | August 12, 2021 2:17 PM SGT
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SINGAPORE (EDGEPROP) - When it comes to rental yields, HDB flats tend to have the upper hand compared to condos due to their lower absolute prices. Rental yields for HDB flats are said to be in the range of between 5% and 7%, more than double the 2% to 3% for private condos. (See also: Punggol and Sengkang home to the most HDB resale transactions in 2021 to-date)
Private residential rents increased 2.9% q-o-q in 2Q2021, after a 2.2% q-o-q increase in 1Q2021, according to the URA rental index. “As the pandemic caused disruptions in the construction industry, the completion of both public and private residential projects was delayed,” says Nicholas Mak, ERA Realty’s head of research & consultancy. “As a result, some households are renting residential properties while waiting for the completion of their acquired properties.”
The higher rents have pushed up rental yields too. A check on condo projects showed some condo units at The Hillford achieving rental yields above 4%. The 281-unit, 60-year leasehold condo development at Jalan Jurong Kechil, off Upper Bukit Timah, topped the list with an implied rental yield of 4.7%.
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But what about HDB flats? While data on rental yields for public housing is not readily available, we looked at rental and sales transactions available on the HDB website to find the best performing HDB units in terms of rental yields.

Methodology

For our exercise, we looked at monthly rental data and transacted prices for HDB flats between Jan 1, 2020 and Aug 4, 2021. We narrowed our search by excluding HDB blocks that had fewer than three rental or sales transactions within that time-frame.
We took the transaction data for each HDB block to arrive at the average monthly rent as well as average transacted price. Subsequently, we calculated gross rental yield for each HDB block by dividing the annualised rental amount with the average transacted price for each HDB.
We then segregated the data by flat type: three-, four- and five-room HDB flats, according to those with the highest transaction volumes. In the tables, we list the 10 HDB units with the highest rental yields for each flat type.
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Do note that the exercise is meant to give an indication of potential yields based on the data available, though actual yield may differ depending on actual rent and transaction values for a particular unit. The rental yield may be impacted by the age of the HDB block, unit size, transaction timing, whether the unit has been renovated, the maturity of the estate and amenities around, among many other factors.

HDB blocks with the highest rental yields, by flat type

Three-room HDB flats
Three-room HDB flats - EDGEPROP SINGAPORE
Source: HDB, EdgeProp
For three-room flats, the highest-yielding HDB block is Block 24 Balam Road, with a yield of 10.1% (see Table 1). The 10-storey building located in Geylang has a 99-year lease from 1967. This means it has a remaining lease of 44 years. The block comprises about 120 units of three-room flats.
The block is located within walking distance of the MacPherson MRT Station, with access to both the Circle and Downtown Lines. Amenities like supermarkets and hawker centres are also easily accessible. Such conveniences make the area popular with expatriate tenants.
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Four-room HDB flats
Four-room HDB flats - EDGEPROP SINGAPORE
For four-room flats, the highest-yielding HDB block is Block 437 Woodlands Street 41, with a yield of 9.3% (see Table 2). The block has a tenure of 99 years beginning from 1996, which means it has a remaining lease of 74 years. It has 12 floors and a total of 114 units of four-room flats. The block is located next to the Singapore American School.
Meanwhile, Block 228 Lorong 8 Toa Payoh is located close to the Toa Payoh Industrial Park, which explains why four-room flats in the block have the second highest yield.
As for 201 Marsiling Drive, it is located within the HDB estate of Marsiling Admiralty Park in Woodlands, which is near amenities such as parks, the market and hawker centre, as well as Marsiling Industrial Estate. These four room HDB flats are sought after probably because of their proximity to places of employment, such as industrial parks.
Five-room HDB flats
Five-room HDB flats - EDGEPROP SINGAPORE
For five-room flats, the highest-yielding HDB block is at Pandan Gardens, off West Coast Road (see Table 3). The highest-yielding is Block 407 and the second highest-yielding is Block 403 Pandan Gardens, with rental yields of 7.8% and 7.5% respectively. These two HDB blocks are located adjacent to the Pandan River and across the road from the Pandan Reservoir.
They are also situated near Pandan Gardens Leisure Park along the river, and are also within walking distance of a park connector leading to West Coast Park and Clementi Woods Park. Teban Gardens Market and Food Centre are also located close by.
The blocks at Pandan Gardens have a 99-year lease from April 1979. Hence, they have a remaining lease of 56 years. The blocks are 12 storeys high, with 112 five-room flats. The blocks at Pandan Gardens are also near the Jurong Gateway commercial hub at Jurong East, where the Jurong East MRT Interchange Station for the East-West and North-South Lines is located. Perhaps that’s why Pandan Gardens is sought after, given its accessibility to lifestyle amenities, from park connectors to malls and MRT station.

Three-room flats in the city fringe have the highest yields

Based on our analysis, yields appear to be generally the highest for three-room flats, presumably because of the lower absolute prices compared to rental rates achieved.
The median monthly rent for three room flats stood at $1,705, compared to four-room flats, which had a median monthly rent of $2,059. This translates to a difference of just $354.
For three-room HDB flats, many of the highest-yielding are the older blocks built in the late 1960s and early 1970s, with remaining leases of 44 to 53 years. They are also mainly in the city fringe, with Geylang being especially popular, and showing the highest rental yields.
In contrast, for four- and five-room flats, the HDB blocks with the highest yields are in the mature suburban HDB estates, such as Jurong West, Jurong East, Pandan Gardens and Woodlands. This could be due to lifestyle amenities in the area, from MRT stations to parks, schools, food courts and markets, and proximity to places of employment, such as industial parks or commercial hubs. Hence, such four- and five-room flats appeal to expatriates with families, as these flats are more spacious than some of the new private condos.

Investing in HDB units?

The higher rental yields and lower prices for HDB flats make them appear attractive as an investment for property buyers looking for rental income. But for prospective buyers keen on capitalising on the high yields, there are restrictions that one has to bear in mind. Under current housing regulations, besides adhering to citizenship and household income threshold, private property owners cannot purchase HDB flats without having to dispose of their private property within six months of purchasing an HDB flat in the resale market.
HDB flat owners who upgrade to a private property can retain and rent out their HDB unit, but only after they have passed the Minimum Occupancy Period (MOP) of five years for their HDB flats. They would also need to seek HDB approval before renting out their flats. While owners can still rent out individual rooms within the MOP, they will still need to seek approval from HDB to do so. This is unlike a private condo, where you have the flexibility of renting out the individual rooms or the entire apartment. (See: Find HDB flats for rent or sale with our Singapore HDB directory)
“With all the current restrictions on the ownership, sales, [and] housing loans of public and private housing, it is very difficult for people who own private residential properties to buy HDB flats for investment,” Mak points out.
Mak also points out that any HDB flat owner who is thinking of buying a condo to live in while renting out his HDB flat has to consider the additional buyer’s stamp duty (ABSD) as well as total debt servicing ratio (TDSR).
“The HDB flat owner must pay ABSD amounting to 12% of the price of the private condo. Assuming that he is buying a three-bedroom private condo unit costing about $1.5 million, he would need to pay $180,000 in ABSD. Assuming that he could rent out this HDB flat for $2,500 per month, which is quite reasonable, he would need 72 months of rent just to cover the ABSD,” Mak illustrates. (See: Discover insightful data of any Singapore condominium with our condo directory)
Given that most HDB flat owners take on a 25- to 30-year home loan when they buy their HDB flats, many usually have an outstanding loan on the HDB flat when they buy their private condo unit, points out Mak.
“That means that the HDB upgrader would only be able to take up a smaller loan for their private condo unless they sell their HDB flat. So, he would either have to come up with a lot of cash upfront to either pay off the loan on the HDB flat or pay for a significant downpayment on the price of the private condo he is purchasing,” he says.
Nonetheless, Mak believes that the outlook for the HDB rental market remains bright. “I expect rental demand to continue to be robust. With the current high vaccination rate among the local population, the Singapore government is planning to open up the economy and let in more foreign talent, leading to higher residential rental demand,” he says.
Mak adds that the easing of safe distancing measures could lead to more marriages, which may also support rental demand as couples waiting to move into their permanent home, for instance HDB BTO flats, could opt to rent an HDB resale flat in the meantime. “Since the supply of HDB flats for lease is quite inelastic in the short term, the above factors would lead to further upward pressure on residential rents,” he explains.

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