Should You Rent Out Your HDB After Upgrading to A Private Property?

For most Singaporeans, their first home is a HDB flat, be it resale or direct from the government which is termed as BTO (Built-To-Order). After meeting the Minimum Occupancy Period (MOP) of five years, the next logical step would be to sell the existing flat, use the proceeds to upgrade to a private property, whether it is a landed property or a private condominium. Yet there are some who upgrade to their dream private property while holding on to the existing flat and renting it out for additional income. Is this a good idea and how would you be able to do it?

According to government regulations, HDB owners must fulfil the MOP period before they are allowed to buy a private property. What’s more, buying a second property will be subjected to the current Additional Buyer’s Stamp Duty (ABSD) implemented in July 2018, which is 12% for the second property and 15% for the third and subsequent properties. So if you are thinking of owning both a HDB flat and a private property, you must have cash on hand for the downpayment of the new property and you also need to factor in the Loan-to Value (LTV) ratio.

For the first HDB flat , you can get up to 90% LTV ratio with a HDB loan. But the LTV is reduced drastically when it comes to the second housing loan. Since you are upgrading to a private property, a second housing loan with a bank will mean the maximum LTV ratio of 50% for up to 30 years tenure and till age 65 years old. Your minimum cash upfront will be 25%. So if you are looking to own both a HDB flat and a private property, the biggest challenge is your financial situation.

Then there is the Total Debt Servicing Ratio (TDSR) which is another obstacle. TDSR calculates the percentage of your income that goes into servicing your loans. The current TDSR is 60%, meaning you cannot use more than 60% of your gross monthly income to pay off your loans, which will include car loan, property loans and credit card bills. The aim of TDSR is to prevent borrowers from being over-extended by the total sum of their loans.

Assuming you have met all the requirements set by the government, is it a good idea to rent out your HDB and stay in the private property?

Many of us like the idea of using the rental income from the HDB flat to cover monthly private property instalment repayment. This sounds like a great idea, but that’s not always the case. Once you have rented out the HDB flat, there are taxes, maintenance and agent commission to be paid. After deducting all expenses, you’ll only likely to get a nett rental income of about 9 months for a one-year rental period, which is unlikely to be higher than the monthly instalment.

Then, there is also a non-citizens quota if you are renting out the whole flat. The quota is currently set at 8% at the neighbourhood level and 11% at the block level, and if the quota has been reached, this means that you cannot rent out your flat to foreigners except Malaysians. The quota does not apply to landlords who are renting out selected bedrooms. 

And you cannot expect your unit to be rented out at all times. There’ll be times when you will have several months of rent-free period as you look for a suitable replacement after the previous renter’s lease expires. Also, bear in mind that since 2013, prices of HDB flats have stagnated or dipped, so the value of your asset may be declining.

So if you do own both a HDB flat and a private property, it may be more worthwhile to rent out your private property and stay in the HDB flat instead. Firstly, you’ll get a higher rental amount to cover the monthly instalment and your asset is likely to appreciate higher in value.

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