20 1-bedder condos with the best rental yields and what we've learned from it

The one-bedder condo has long been the darling of the Singapore rental market. It headed the shoebox craze back in the 2010s, until URA had to regulate unit sizes. Then it became the main star of the "Sell One, Buy Two" trend, which drove the market up from the dark days of 2016/17.

But now, in the wake of mounting ABSD costs, can the humble shoebox retain its place as a leading investment property option? Let's take a look at how well they've been performing:

Top-performing one-bedders by gross rental yield

Source: Squarefoot Research, URA

Note: 

1. The Hillford’s high ranking is due to the condo’s unusually low cost, which stems from its 60-year lease. 
2. Sol Acres is an EC that just reached its five-year MOP (TOP in 2018), so this is the first time owners can rent out the entire unit. 

Some observations on one-bedders to date

• Central region units are beating general expectations
• Rental income is rather comparable to HDB flats (whole flats) 
• Replacement costs due to ABSD may be weighing on transaction volumes
• CCR units may be set to gain from ABSD hikes 
• Majority of high rental yield one-bedders are less than 10 years old
• 30 per cent of the list is in Geylang

1. Central region units are beating general expectations

As a general rule of thumb, family-sized units are expected to have gross rental yields of between two to three per cent, whilst shoebox units are expected to reach around four to five per cent. This is due to the cost of the property: Gross rental yield = (annual rental income/total cost) x 100.

From the table, you can see that the top performing CCR units have all exceeded five per cent, with Parc Somme managing 6.1 per cent (we'll exclude The Hillford, as it has an unfair advantage.)

This is likely carried on from the rental surge in 2022, when rents for some expats rose up to 70 per cent. This was an outlier event, caused by a combination of a housing shortage, plus the rapid return of foreign workers after Covid. At the time of writing, rental rates have flattened out, and the momentum is lost. 

We also don't expect a repeat event, given that more projects will reach TOP by the end of this year, or 2024. The projects completed this year also include mega-developments like Normanton Park and Treasure at Tampines (the largest ever condo in Singapore), which will ease the previous supply issues.

2. Rental income is rather comparable to HDB flats (whole flat)

HDB provides data on median rental rates for flats. A cursory glance at Q3 rental rates shows that — dollar wise — the income generated from a three-room resale flat (entire flat) is broadly comparable to many shoebox units. 

Town	3-Room	4-Room	5-Room
Ang Mo Kio	$2,700	$3,380	$3,700
Bedok	$2,700	$3,280	$3,500
Bishan	$2,800	$3,600	$4,000
Bukit Batok	$2,600	$3,150	$3,700
Bukit Merah	$3,000	$3,900	$4,400
Bukit Panjang	$2,600	$3,000	$3,400
Bukit Timah	*	*	*
Central	$3,080	$4,100	*
Choa Chu Kang	$2,300	$3,100	$3,300
Clementi	$2,900	$3,800	$4,000
Geylang	$2,700	$3,100	$3,850
Hougang	$2,580	$3,150	$3,450
Jurong East	$2,680	$3,500	$3,700
Jurong West	$2,700	$3,200	$3,500
Kallang/ Whampoa	$2,700	$3,500	$3,400
Marine Parade	$3,000	$3,080	*
Pasir Ris	*	$3,300	$3,300
Punggol	$2,800	$3,300	$3,400
Queenstown	$3,000	$4,300	$4,500
Sembawang	*	$3,200	$3,200
Sengkang	$2,900	$3,200	$3,400
Serangoon	$2,700	$3,400	$3,550
Tampines	$2,880	$3,300	$3,580
Toa Payoh	$2,800	$3,500	$4,000
Woodlands	$2,500	$3,000	$3,230
Yishun	$2,650	$3,100	$3,500

Source: HDB. *Not enough transactions.

Setting aside yield percentages, buyers may want to consider that (in literal dollars) they could make as much from their flat as they could from a shoebox unit. As such, those who have met the five-year MOP may want to consider retaining their flat while buying a condo unit, instead of an approach like “Sell One, Buy Two” (i.e., selling the flat to buy a three-bedder and another one-bedder). 

Doing so would incur the 20 per cent ABSD, but some might consider that an acceptable price for avoiding the vagaries of shoebox investing.

3. Replacement costs due to ABSD may be weighing on transaction volumes

With the exception of Sol Acres, most of the top-performing shoebox units have seen few resale transactions. 

(Sol Acres just reached its five-year MOP this year, hence the number of transactions; it's common for EC owners to sell at the five-year mark to realise their gains.)

From word on the ground, this is a reaction to the April 2023 cooling measures. The ABSD rate for a second property (for Singapore citizens) was raised to 20 per cent; so owners of second properties are keenly aware that if they sell their rental asset, it will be much more expensive to replace it in future. So for those seeking rental income rather than gains (e.g., retirees who want cash flow), it's unlikely that they'll surrender their one-bedders anytime soon. 

4. CCR units may be set to gain from ABSD hikes

Also from word on the ground, there's speculation that ABSD hikes may have indirectly provided a boost to CCR rental assets. As foreigners now have to pay 60 per cent ABSD, more of them may be inclined to rent rather than buy. This might provide a boost to the CCR, which is the preferred region for most expats/foreigners.

This is speculative though, and some realtors are sceptical that rental rates can rise when they just hit a new peak last year.

5. Majority of high rental yield one-bedders are less than 10 years old

This is perhaps not so much of a surprise, given that generally tenants would prefer to rent a newer place if possible. Also, many of these units at such small sizes were built around the same time frame, when it was a trend to build such small Mickey Mouse units.

6. 30 per cent of the list is in Geylang

Another trend that's worth pointing out here is that 30 per cent of condos in the list are in Geylang. This does show the demand for rental in the area, and it is also perhaps commensurate with the more "depressed" prices because of the common associations with vice activities.

Nevertheless, this follows with another commonality - more than half of the list are freehold condos. This is likely because most of the condos here are small boutique ones, with 14 out of the top 20 housing just 100 units and below.

Before you rush out to buy a one-bedder, do keep in mind the higher interest rates

Just as a reminder, gross rental yield doesn't take into account recurring costs such as property tax, home loan repayments, and maintenance fees. Net rental yields are not reflected above, and these can be adversely affected by mounting home loan interest rates. 

Some astute readers might also point out that central region condos are likely to have higher maintenance fees, so net rental yields could be lower than fringe-region counterparts. This will vary based on the specific project.

Ultimately, do bear in mind that these projects with high rental yields are also typically ones whose quantum has not been increasing in tandem with the rest of the market. In light of these considerations, potential investors should approach the purchase of one-bedroom condos with a balanced perspective, whether they're seeking immediate rental income or long-term capital appreciation.

ALSO READ: All you need to know about HDB rental prices and latest rental transactions in 2023

This article was first published in Stackedhomes.