You may know of people who rent out HDB to earn a side income from the rental yield. Having a tenanted HDB flat also helps with mortgage payments, whether it’s easing your own financial commitments or covering the monthly mortgage before you later put up the house for sale.
Or should you just go straight to selling your HDB flat when the Minimum Occupancy Period (MOP) is up? By doing so, you typically enjoy capital appreciation without the hassle of managing tenant(s).
According to our latest Singapore Property Market Report, asking rents have stabilised and have been dipping slowly since Q1 2023. A quick check on the HDB rental statistics show that rents are largely quite stable, with increases mostly in the non-mature estates. But most renters polled in our Singapore Consumer Sentiment Study H1 2024, still felt rental prices were too high.
Meanwhile, for potential sellers, HDB flash estimates of the Q3 2024 Resale Price Index show that resale prices are still on the rise, with an increase of 2.5% over that in the Q2 2024.
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Should you sell or rent out your HDB flat? Let’s look at these five considerations to help you make a decision.
1. Rent Out HDB or Sell? Check Requirements First
Before deciding on a course of action, make sure you check the legal terms of your HDB flat to ensure that you are even allowed to rent out HDB or put up your house for sale. With a government asset, flouting the restrictions is one sure-fire way to get penalties imposed – eating into any of the profits you might have made.
Under HDB’s new Standard, Plus, and Prime housing framework, these new HDB flats may have longer MOP, and tighter restrictions around renting and resale.
Are you allowed to rent out HDB?
Only Singapore Citizens can rent out their whole HDB unit after MOP, which is typically five years. As the landlord, you will also need to screen your tenants, to ensure they are allowed to reside in Singapore (tourists not allowed), and that they meet HDB’s non-citizen quota for renting out of flat. There are additional restrictions around the number of tenants, and you will need to do background checks on their tenancy and property ownership status.
Future homeowners of the new HDB Prime flats cannot rent out the entire HDB, even after MOP.
For owners of HDB who want to rent out a room (or more), you can only do so if you have a 3-bedroom or larger flat. You will need to seek HDB’s approval, and yes, you’ll need to screen your tenant as well.
Can You Start Listing Your House for Sale?
Typically, you are able to sell your HDB flat after the MOP. This is usually five years, and for the new batch of Plus and Prime flats, 10 years. The MOP is usually computed from the day your flat purchase was legally completed. This excludes any period where the flat was not occupied by you – so if you had been renting out your whole flat, that is not part of the MOP.
Make sure you also take note of any HDB resale restrictions, such as who you can sell to, their citizenship and income, is there any subsidy clawback, if there is any wait-out period, and other eligibility criteria.
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2. Observe Market Trends: Buyer’s Market or Seller’s Market?
While blindly chasing trends is not ideal, knowing the current market conditions can help inform your decision to rent out your HDB flat or to sell your house instead.
It was recently reported that prices of private homes have dipped in Q3 2024, as buyers gravitated towards larger, newer HDB flats. In addition, with the HDB flash estimates of the Q3 2024 Resale Price Index showing resale prices and transactions on the rise, it appears that the HDB property market is a seller’s market (i.e. good for sellers, as demand is high).
However, with HDB’s launch of a bumper crop of 8,573 Standard, Plus, and Prime BTO flats in 15 projects in its October 2024 sales exercise, the flood of upcoming homes might cause demand for resale flats to dip in the future. Some of those who successfully ballot for a flat might seek to bridge the waiting time by renting an HDB flat instead.
Speaking of renting, opting to rent out your HDB flat could be a way to still generate income while you wait for market conditions to be fully in your favour so you can maximise your gains.
For those sitting on a potential million-dollar HDB flat, it is very tempting to cash out, no matter the market condition. Statistics show that the number of million-dollar HDB flats has been increasing year-on-year since the first HDB million-dollar resale transaction in 2012.
That said, market trends do not reflect the specific rental or resale price conditions of your neighbourhood or block. Other factors such as location, nearby amenities, schools, transport links, age of flat, and even interior design also play a part in what tenants or buyers you attract, and what they are willing to pay.
3. Sell or Rent Out HDB? Do Your Financial Calculations
Why lose out on a potential upside by making a rash decision? When deciding whether to sell or rent out your HDB flat, perhaps doing some financial calculations first can help. You want to determine the potential return on investment of your HDB flat, whether through selling or renting it out.
Selling HDB Flat: Costs and Fees Involved
Putting the house for sale offers immediate financial gains, but you also need to read up on any fees or costs. This includes Cash Over Valuation from the buyer, which is dependent on the HDB Valuation price, as well as stamp duty (if any), legal fees, property tax, service and conservancy charges.
Receiving your HDB sales proceeds is also not straightforward, as you will need to deduct from it any outstanding loan, CPF monies used with accrued interest, other legal and agent commission fees, and penalties.
Rent Out HDB Flat: What is Rental Yield?
It is also important for HDB homeowners to consider the rental yield of their HDB flat. This is the nett amount after deducting any overheads such as insurance, maintenance, property taxes from the rental income.
It is likely that you are still paying your HDB home loan too, so financing costs like mortgage should also be factored into the rental yield of your HDB flat. Are you still making a profit from renting out the flat? Or is its upkeep higher than what you can sustain?
As the rental market fluctuates, your rental income too, will also vary. Locking in your tenant at a very high price is not fair; neither is undercharging your tenant beneficial to your own wallet.
4. Consider Your Own Personal Preferences
Considering your own needs/goals is a key part of the decision making process. In the end, the decision is a balance of what is good for your bank account and what suits your personal preferences. Let’s weigh some pros and cons of selling and renting.
Sell HDB Flat: Pros and Cons
While not immediate, having the HDB sales proceeds from selling your HDB flat is a lump sum that can be used for other investment or housing opportunities.
Those who proceed to buy their second HDB flat may also have additional restrictions. A resale flat may also be pricier and eat into your earnings.
Some may also choose to upgrade to a private property, which is more expensive and has higher upkeep costs. Do note that those who own a private property cannot buy an HDB flat.
Sentimental value may also come into play. Perhaps the HDB flat is in your favourite neighbourhood, or maybe you painted the wall mural yourself. Keeping the HDB flat might be a better choice than selling it for some potential upside but a lifetime of regret.
Rent Out HDB: Pros and Cons
Having consistent rental income can help to offset your mortgage, and in future generate passive income to fuel your financial independence or travel dreams. If the HDB flat will be unoccupied anyway, why not use it as an income stream?
Renting out your HDB flat is also a good strategy if you are waiting for possible property appreciation, if you plan to sell the HDB flat in the future. Do remember that you will also need to pay rental income tax on your rental income (not rental yield).
Even if you don’t encounter a nightmare tenant, you will still need to manage them and resolve issues with the HDB flat such as broken appliances. If the thought of handling these gives you anxiety, perhaps renting out the HDB flat is not the way to go.
5. Consult An Expert
If you are still undecided, perhaps it is time to consult an expert. Veteran property agents who are familiar with the process, paperwork and even neighbourhood are invaluable resources you can tap for the sale or renting out of your HDB flat.
Lean on their years of experience to analyse market trends, negotiate the best price for your HDB flat, sort out the financial calculations in detail and suss out genuine tenants or buyers.
Do also remember that you are ultimately the homeowner and landlord. Hence, it is in your own interest to do your own research and actively play a part in the process, whether it is to rent out your HDB flat or list your house for sale.
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