Renting HDB flats has grown in popularity in Singapore. The significant increase in approved HDB rental applications of approximately 58% over the last five years suggests that more homeowners are renting out their properties to earn extra money. We wondered what kind of returns a homeowner could expect from investing in a HDB. This article examines the costs and benefits of purchasing a HDB flat by analyzing the potential returns and comparing them to other investment options.
There are two ways that purchasing a HDB as an investment could generate returns. So it's a question of BTO vs resale SG flats. First, individuals can generate rental income by renting out their extra home. According to available rental and resale data from the Housing and Development Board, HDBs typically generate an annual rental yield of about 5% of their market resale value. A S$500,000 HDB, for example, can bring in approximately S$25,000 in rent per year.
For a new BTO flat, you can only rent out your flat after at least 5 years of occupation. However, you can still rent out a few bedrooms. Then BTO vs resale SG HDB flats will be in our minds when it comes to money making opportunities!
You must live in the MOP before it is completed. That means you can't rent out the entire apartment.
You CAN, however, rent out rooms in your flat as long as you continue to live there. That effectively means you must occupy at least one bedroom in the flat.
However, do not rent out your rooms for less than six months. HDB rentals must be for at least 6 months, or you risk having your flat confiscated (!) for violating the rules. And don't even consider listing your rooms on Airbnb, as the penalties are harsher than for private property owners who break the rules.
Also, if HDB officers decide to inspect your flat, you must be able to demonstrate that you are living there. So, at all times, make sure you have a room that you can claim as your own.
Furthermore, HDB investors can profit from the resale of their HDB. While resale flat prices have not been particularly high in recent years, they have increased by 44% over the last decade.
In addition, there are numerous costs associated with purchasing a HDB as an investment. To begin with, because many people will need a home loan to purchase a second home, they will have to make mortgage payments to finance their investment. The interest rate you obtain determines the total cost of borrowing for a home loan. Interest rates on home loans typically fluctuate, so it is critical to be aware of the best rates currently available as well as your estimated monthly payments when calculating the total cost of your investment.
Property taxes, home maintenance, and home insurance are also expenses. These annual costs are estimated to be around S$13,900 for a S$500,000 HDB. Finally, there are a number of one-time costs associated with buying and eventually selling your apartment. Legal fees, valuation costs, buyer's stamp duty (BSD), additional buyer's stamp duty (ABSD), and a property agent commission are all included. We estimate that these one-time costs total approximately S$85,800 for the same S$500,000 flat.
Read more about HDB rental rules - https://www.gov.sg/article/renting-out-your-hdb-flat