Is it worth buying a resale HDB flat for rental income? Top 10 HDB towns by rental yield

PHOTO: Stackedhomes

One of the biggest advantages of HDB flats is their low cost, in comparison to the potential rental income. In terms of gross rental yield, the typical mass-market condo averages two to three per cent per annum (as of 2021).

It’s often only shoebox units, or the oldest condos, that can reach an average of five per cent.

With resale flats however, gross rental yields of five to seven per cent are the current norm; almost on par with some commercial properties. However, the fact remains that some HDB towns perform significantly better than others – these are the top ones to date:

How we derived the HDB rental yield

The following is based on gross rental yield (annual rental income / cost). In addition, we have included the lease start date for most of the flats.

Note that there will always be variations for individual units (e.g., units closer to MRT stations may generate a higher yield, as might more recently renovated units) for details on a specific flat or block, contact us with the address and we’ll look it up for you.

We have separated the top 10 lists for three-room, four-room, and five-room flats. We’ve left out executive flats as transaction volumes are lower, and median rents are sometimes unclear.

Top 10 HDB rental yield for three-room flats

Town Yield Median rents M edian prices Average age (start date of 99-year lease)
Toa Payoh 8.06 per cent $1,800 $268,000 1971
Geylang 7.76 per cent $1,800 $278,500 1977
Kallang / Whampoa 7.52 per cent $1,900 $303,000 1974
Bedok 7.45 per cent $1,800 $290,000 1979
Bukit Batok 7.42 per cent $1,700 $275,000 1985
Bukit Merah 7.32 per cent $2,000 $328,000 1976
Queenstown 7.32 per cent $2,000 $328,000 1974
Jurong West 7.29 per cent $1,700 $280,000 1983
Jurong East 7.22 per cent $1,800 $299,000 1986
Hougang 7.22 per cent $1,750 $291,000 1986

Top 10 HDB rental yield for four-room flats

Town Yield M edian rents M edian prices Average age (start date of 99-year lease)
Jurong West 6.5 per cent $2,000 $369,000 1997
Bukit Batok 6.32 per cent $2,000 $380,000 1986
Sembawang 6.22 per cent $1,900 $366,500 2004
Ang Mo Kio 6.22 per cent $2,100 $405,444 1980
Woodlands 6.16 per cent $1,900 $370,000 1998
Bedok 6.15 per cent $2,100 $410,000 1986
Serangoon 6.11 per cent $2,230 $438,000 1986
Clementi 6.06 per cent $2,500 $495,000 1980
Jurong East 5.96 per cent $2,100 $422,500 1998
Hougang 5.87 per cent $2,000 $409,000 1992

Top 10 HDB rental yield for five-room flats

Town 5 Room Median Rents Median Price Average Age (start date of 99-year lease)
Jurong West 5.77 per cent $2,250 $468,000 2001
Sembawang 5.69 per cent $2,000 $422,000 2001
Jurong East 5.27 per cent $2,300 $524,000 1983
Pasir Ris 5.16 per cent $2,200 $511,400 1994
Woodlands 5.12 per cent $1,900 $445,000 1998
Tampines 5.06 per cent $2,300 $545,000 1993
Serangoon 5.05 per cent $2,300 $547,000 1989
Choa Chu Kang 5.03 per cent $1,950 $465,500 2000
Bukit Batok 4.98 per cent $2,200 $530,000 1989
Geylang 4.95 per cent $2,680 $650,000 1988

Key things to note about the HDB rental market in 2021

  • We may be reaching a new peak for HDB rental rates
  • The rental difference is not very big, in absolute terms
  • Newcomers are beginning to creep into the list

1. We may be reaching a new peak for HDB rental rates

Despite a fall in leasing volumes for February (mainly due to Chinese New Year), the HDB rental market has seen a rise in recent months:

PHOTO: URA, Realis and 99.co

Despite lower transaction volumes, monthly rental rates have risen for eight consecutive months between June 2020 to Feb 2021; this is from an average of $1,977 to $2,049.

It’s expected to rise further along with leasing volumes over this past month, as the Chinese New Year month is usually a lull period.

Overall, HDB rental rates are still down around 12 per cent from the last peak in August 2013, when rates averaged $2,307.

However, it’s worth noting that rental rates were more or less in continuous decline since 2013, so the past few months have made up several years of declining rental. It’s especially surprising, given that the rental market was expected to suffer the most from Covid-19.

PHOTO: Stackedhomes

What’s causing this to happen?

When HDB rental rates started rising around June (the time of the Circuit Breaker), the most common attribution was to Malaysia’s Movement Control Order (MCO), and “stuck” foreign workers.

The reason given was that leasing volumes and prices picked up, because of foreigners unable to return and forced to stay.

However, that alone wouldn’t explain why HDB rental rates continued to soar afterward; and we’re not sure why. Conversations with realtors and analysts have given us a hodgepodge of explanations, including:

  • Fewer flats being listed for rental, thus propping up rental prices (which we doubt, since we haven’t seen a notable drop in listings)
  • There are more upgraders currently, and these families are renting out flats temporarily while they wait for their new homes to be built
  • The Circuit Breaker was stifling, and prompted some younger Singaporeans to decide to move out as soon as possible, renting if they can’t buy
  • Construction and renovation delays from Covid-19 have resulted in a greater need for temporary accommodation

It’s also possible that it’s all of the above combined. In any case, 2020 and 2021 are proving to be strange years for the property market; and good ones for flat owners renting out.

2. The rental difference is not very big, in absolute terms

For example, the median rent for a four-room flat in Bedok is $2,100. The median rent for a five-room flat in the same town is just $2,200. Likewise, the difference between a four-room and five-room flat in Hougang is just $130 ($2,000 and $2,130 respectively).

For reference, the typical size difference between a four-room and five-room flat is about 200 to 215 sq.ft (older flats tend to be bigger).

Prospective tenants may want to take note, as the rental costs for a bigger flat may be easily justified in some cases.

PHOTO: Stackedhomes

3. Newcomers are beginning to creep into the list

Four-room flats are a good overall indicator of HDB trends, as they’re the most ubiquitous flat size. Notice that a number of neighbourhoods, that weren’t always on the top 10 lists before, are beginning to creep in among four-room flats.

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Clementi and the non-mature town of Sembawang are starting to see more interest. Clementi’s presence isn’t surprising, as the area has benefitted from proximity to One-North and Buona Vista.

For Sembawang, recent improvements – particularly the emergence of Bukit Canberra – suggests this might be a place to watch.

Also note that, in the context of four-room flats, four of the top five HDB towns are non-mature areas.

The lower costs of these estates make it easier to generate a good yield. It’s something to think about, for more investment-minded flat buyers.

Following recovery from Covid-19, we expect that rental rates for HDB flats should continue to pick up

As more foreign workers return to Singapore, there will likely be more demand for rental flats. However, this may be mitigated by the sheer number of flats reaching their MOP this year.

If everyone has the same idea to put their flat on the rental market right after five years, we may see the momentum slow.

Otherwise, 2020 and 2021 seem to be the pay-off year for many flat owners; especially those who bought four-room units early on, in less mature estates.

This article was first published in Stackedhomes.