Rents of Housing Development Board (HDB) flats, which have been rising steadily, are increasing only slightly in the third quarter. The rates, which have been on the rise largely due to demand from foreigners squeezed out of the private homes market, could be affected by falling rents of private homes.

Property experts say HDB rents have peaked and will hold steady for the next few months before it begins to crack from the pressure of falling rents in the private homes market.

Knight Frank’s director of research and consultancy Nicholas Mak said any decline in private rents will contribute to the downward slide in HDB rents. However, it may take a few months for the impact to filter down, he added.

Effects of the pressure are already beginning to show, as reflected by smaller increases of HDB flat rents in the third quarter. Median rents for five-room flats have increased by S$100 every quarter this year to S$2,000 in the third.

But median rents for three-room flats stayed at S$1,500 in the three-month period to September 30, while median rents for four-room flats showed a smaller S$50 increase to S$1,800, from S$1,750 in the second quarter and S$1,600 in the first.

Private home rents are expected to continue to fall due to the weaker economic outlook, particularly as supply is expected to increase next year when more developments are completed.

Currently in the market are 21,400 HDB flats approved for subletting, an increase from 20,000 in the second quarter. But HDB subletting deals fell four per cent to 3,960 cases in the third quarter.

Rentals are likely to decrease next year when tenancies are up for renewal. Landlords who do not lower rents may have tenants switching over to private apartments, as the price difference between the two types of property narrows.

Government data reveal that private home rents increased sharply by 41.2 per cent last year, with rents for non-landed homes in suburban areas going up 41.9 per cent. Meanwhile, HDB rents have declined a little with three-room flats fetching between S$1,400 and S$1,600 per month but not more than that.

Unit size and location are important factors in determining HDB rents. A small three-room flat within a prime location can get more than S$2,000 per month but an executive flat in the same location may not even fetch S$3,000 per month. The threshold for HDB flats hover at S$2,500; for anything more than that, tenants would rather go for condominiums with facilities.

HDB flat owners are allowed to rent out their entire unit only after occupying it for three years; five years if they have a subsidy or housing grant. The current hot rental properties are three-room flats in central Bukit Merah and Marine Parade, where the highest rents among HDB towns can be found.