How will the new cap in tenant capacity affect HDB rentals?

fiona.ho@edgeprop.sg

From 1 May 2018, the occupancy cap for 4-room and larger HDB flats being rented out will be reduced to six persons, from the current maximum cap of nine persons. This includes owners, occupiers and tenants.

The change is in line with URA’s cap of six persons for private residential properties that are rented out, and will apply for HDB flat owners who are renting out their flats or bedrooms to unrelated persons (defined as those who are not from the same family unit).

Meanwhile, the cap for 3-room and smaller flats remained unchanged at six persons and four persons respectively. The new requirements will also apply to living quarters of commercial properties, and will take effect for all new and renewal applications submitted from 1 May 2018. Below is a gist of the revised caps:

Source: HDB

According to HDB, the changes in tenant capacity seek to minimise disamenities caused by overcrowding, and to maintain a conducive living environment in our public housing estates.

 

How will the change in tenant capacity affect your rental income?

The revised occupancy cap may cause a dip in rental income for some HDB flat owners. For instance, based on HDB rental listings on Edgeprop.sg, a shared HDB room in locations like Ang Mo Kio or Tampines currently costs about $250 a month. Using this as a benchmark, let’s look at the following example on how the new cap could potentially impact your rental earnings:

Firstly, we assume that the “landlord” is a Singaporean couple who own a four-room HDB flat in Tampines, and have positioned their home to be both their place of residence and also a source of rental income.

Based on the $250 rental rate for a shared room, the couple could potentially earn up to $1,750 per month in gross rent if they were to take up to seven tenants prior to the occupancy cap revision.

The new cap would mean that the couple will only be able to take up a maximum of four tenants in the near future. Consequentially, their earning potential from rental would be slashed by nearly 43% to just $1,000 a month, if they continued to charge similar rental rates per tenant.

But in reality, homeowners renting out shared rooms to multiple tenants would likely raise rentals to make up for the reduced rates, especially amidst the continuous decline in HDB rental prices. According to HDB data, the median rent for a four-room unit in Tampines was $2,000 in 4Q2017, 5% lower than $2,100 in 4Q2016, and 15% lower than $2,300 in 4Q2015.

The effects from the cap revision will be most heavily felt by lower-income earners and blue-collar workers.

However, ZACD Group executive director Mr. Nicholas Mak, opines that the changes will not have a significant impact on the HDB rental market as a whole. HDB rental rates will not be greatly affected as they are typically determined by age, location and size of the flat, rather than the number of tenants in a unit, he says, adding that the new cap will affect just a “small fraction” of the existing total number of flats that are permitted to be rented out.

“This levels the playing field between the private residential and HDB leasing market, in terms of the number of tenants for respective unit types,” Mak notes.

 

Other HDB regulations to take note of when renting out your flat

1) The non-citizen quota

Flat owners who rent out their homes to one or more non-citizen tenants (Singapore Permanent Residents or foreigners) are subject to the non-citizen quota, introduced in 2014. According to HDB, the quota serves to help maintain a good ethnic mix in HDB estates. Malaysians are not subject to this quota in view of their close cultural and historical similarities with Singaporeans.

Currently, the quota is set at 8% at the neighbourhood level and 11% at the block level, and is applicable if any tenant renting the flat is a non-Malaysian non-citizen. If the quota is reached, only Singaporeans and Malaysians can rent a flat in that neighbourhood/ block.

This quota, however, does not apply to the renting out of bedrooms. For that, owners are required to seek HDB’s approval and ensure they meet the quota before renting out their flats.

 

2) Restrictions for work permit holders

Since 1 January 2017, non-Malaysian work permit holders from the manufacturing sector are no longer eligible to rent a whole HDB flat, and can only rent rooms. Work permits are for semi-skilled foreign workers in the construction, manufacturing, marine, process or service sectors.  

Non-Malaysian work permit holders from the construction sector have not been able to sublet HDB flats or rooms since November 2006. This was extended to the marine and process sectors from May 2015.

Presently, only non-Malaysian work permit holders in the service sector can rent whole HDB flats.

 

3) Rental period of at least six months

The minimum stay duration for both HDB flat and bedroom rentals is six months.

Owners can apply or register to rent out their flats or bedrooms for a maximum period of three years per application or registration if their tenants are all Singaporeans or Malaysians.

Meanwhile, applications involving non-Malaysian non-citizens, can only apply or register for a maximum period of 1.5 years.

 

4) Partitioned rooms cannot be used as bedrooms

As with the number of people who can reside in them, HDB also comes with strict and specific partitioning regulations.

For instance, only bedrooms that were originally constructed by HDB can be rented out. All other parts of the flat, which include partitioned rooms, cannot be used as bedrooms to be rented out to tenants.

Read more about the revised occupancy cap for renting out HDB flats here.

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