Is Buying an HDB Flat to Rent It Out a Good Investment Idea?

If you’ve ever rented an apartment, you know the pain of writing checks every month to your landlord. This experience may make it seem like being a landlord is an easy way to make a lot of money. But how much of a return can you really earn from renting an HDB flat? To find out, we gathered and analysed several data sets about HDBs to estimate an average annual return from purchasing an HDB property as an investment.

ValueChampion Editorial Team

by ValueChampion Editorial Team on May 30, 2024

HDB singapore

Renting HDB flats has become increasingly popular in Singapore. The number of HDB flats up for rent have been on a stead increase throughout the last decade. The number of HDB flats approved for rentals increased by 30% from 30,074 units in 2013 to 39,138 units in 2023, suggesting that more homeowners are renting out their properties in order to earn extra money.

We wondered what kind of returns a homeowner could expect from purchasing an HDB as an investment. This article explores the costs and benefits of purchasing an HDB flat by analysing the range of possible returns and comparing them to other investment opportunities.

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Number of HDB rental applications approved

Returns from Purchasing a HDB Flat as an Investment: Rent and Resale

There are 2 ways that purchasing an HDB could generate returns as an investment. First, individuals can earn rental income by renting out their additional residence.

In fact, HDBs typically generate annual rental yield of approximately 5% – 8% of their market resale value, according to available rental and resale data from the Housing and Development Board.  Additionally, HDB investors can earn a return from reselling their HDB. This in itself could be particularly attractive to investors given the rise in S$1 million HDBs in recent years. 

estimated rental yield of HDB

How Much Will an Investment HDB Flat Cost You?

There are also many costs associated with purchasing an HDB as an investment. First of all, because many individuals will require a home loan in order to purchase a HDB, they will have to make mortgage payments to finance their investment.

The total cost of borrowing for a home loan is determined by the interest rate you obtain. Interest rates for home loans typically change frequently, so it is important to be aware of the best rates currently available and your estimated monthly payments when calculating the total cost of your investment.

Best Fixed Mortgage Rate Loans for HDBs

BankMonthly Instalment1st Yr InterestLock-in Period
DBS$ 2,3402.8802 years
DBS$ 2,3452.9002 years
DBS$ 2,3973.1002 years
DBS$ 2,4373.2502 years
DBS$ 2,5713.7503 years

Best Floating Mortgage Rate Homes for HDBs

BankMonthly Instalment1st Yr InterestLock-in Period
DBS$ 2,3924.0002 years
DBS$ 2,4450.7502 years
DBS$ 2,5520.7502 years
HLF$ 2,6343.3002 years
HLF$ 2,7373.4002 years

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Other costs include property taxes, home maintenance and home insurance. We estimate that these annual costs amount to approximately S$13,900 for a S$500,000 HDB.

Finally, there are several one-time costs associated with purchasing and eventually selling your flat. These include legal fees, valuation costs, buyer’s stamp duty (BSD), additional buyer’s stamp duty (ABSD) and a property agent commission.

Related: How Much Should Your First Home Cost?

hdb singapore
Source: Unsplash

How Does an HDB Investment Compare to Other Opportunities?

We calculated that the average annual return for purchasing an S$500,000 HDB flat, renting it for 15 years and then reselling it is about 3.3%. This figure takes into account all of the income and costs mentioned above. It is also very dependent on the expected appreciation of the HDB’s resale value. We assumed a somewhat conservative 2% annual appreciation rate, which is much lower than the double digit percentage jumps in price that we have seen post pandemic. This is in consideration of the recently implemented cooling measures as well as increase in supply of BTO flats being likely to temper resale flat prices going forward.

Regardless of the annual appreciation rate, the estimated return of purchasing an HDB as an investment property does not compare particularly well to other investment opportunities. For example, on average, the S&P 500 has produced returns of about 10% per year. This is not to say that the stock market will always generate higher returns than an investment HDB; however, on an average basis these groups of investments tend to produce better results for investors.

Related: Guide to the Types of Investments Available in Singapore

living room
Source: Unsplash

Furthermore, you have the Minimum Occupancy Period (MOP) to consider as well. You are not able to rent out your HDB flat for the first five years for standard HDB flats and 10 years for Prime Location Housing (PLH) flats. This would significantly eat into your returns as your investment would take years to start bearing fruit.

Therefore, purchasing a HDB residence purely as an investment is probably not the best financial decision. However, individuals that are looking to rent out a HDB flat they already own or do not require financing could earn much better returns as they would be able to avoid significant costs. As with any other major financial decision, it is important to carefully weigh your options based own based on your own particular circumstances.

If you are in the market to buy a HDB flat, check our our results page of all the best mortgages to help you get started financing your purchase.

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Cover image source: Unsplash

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