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Thread: Investment homes face declining rental yield

  1. #1
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    Default Investment homes face declining rental yield

    http://www.straitstimes.com/archive/...yield-20130713

    Investment homes face declining rental yield

    Trend a result of property prices rising faster than the increase in rent

    Published on Jul 13, 2013

    By Fiona Chan


    PROPERTY investors in Singapore are starting to feel the squeeze as rental yields for investment homes sag across all segments of the market.

    This is due to fewer leasing transactions taking place and rents flatlining even as home prices continue to rise, property consultants said.

    Information compiled by Colliers International for The Straits Times showed that net yields of non-landed private homes have been declining since 2008, and are now at 3 per cent or below as of the second quarter of this year.

    Net yields are calculated by deducting service charges and property taxes from the annual gross rent, which is then divided by the property's purchase price.

    Homes in the suburban areas, where prices have proved stubbornly resilient in recent years, saw the largest dip in rental yields, from 4.1 per cent in 2008 to 3 per cent now, Colliers said.

    Yields on the city fringe fell to 3 per cent, from 3.6 per cent in 2008, while yields for centrally located homes slipped from 3.3 per cent to 2.7 per cent in the period.

    "The downward movement in yields in the last five years can be attributed to price appreciation in the residential market," said Colliers director of research and advisory Chia Siew Chuin.

    "Rents have increased in a moderate manner, while prices continued to increase at a faster clip to reach a record high in the second quarter of this year, based on the recent flash estimates."

    While home prices are now partly supported by home buyers' "aspirations" to own an investment property, leasing interest is generally more grounded on fundamentals, said Mr Ong Kah Seng, director of R'ST Research.

    Tenants prefer "cost-effective, practical choices amid the ample new housing completions, and many expatriates have limited or no housing allowances", he said.

    "This accounts for a generally stagnant, or slightly dipping yield situation."

    A more in-depth look at rental yields by the Singapore Real Estate Exchange (SRX) also found that most areas across the island are offering lower rental yields for non-landed private homes now than last year.

    Of the 34 planning areas in Singapore that had more than 30 rental transactions in the first half of this year, 32 areas posted lower yields, said SRX. Singapore has 55 urban planning areas in all.

    The only two areas that recorded higher yields were the downtown core around the Central Business District, and Outram. In fact, investors in Outram scored the highest yields in the country, at 4.6 per cent, SRX said.

    At the other end of the spectrum, Sentosa Cove and the Southern Islands had the lowest rental yield in the first half of this year at only 1.7 per cent, followed by Newton's 2.2 per cent and Orchard's 2.6 per cent.

    Overall, rental yields for the island dipped to 3.9 per cent in the first half of this year, from 4.2 per cent last year and 4.4 per cent in 2011, SRX added.

    Over the next 12 months, consultants expect rental yields to stay flat or even decrease. While prices are not likely to keep soaring, a slew of new homes will be completed soon, putting downward pressure on rents.

    Colliers' Ms Chia said housing prices "are not expected to increase much further in the next 12 months", as buying interest - especially from investors - wanes amid the spectre of rising interest rates and recent loan caps introduced by the central bank.

    "However, rents might slowly correct and ease downwards as there is a significant amount of new completions, bringing more supply into the market," she added. Some 32,700 units are expected to be completed between now and the end of next year.

    "Generally, yields are not expected to increase in the next 12 months, and might experience a mild compression," Ms Chia said.

    Still, net yields of 3 per cent for investment homes are not far below historical trends, and investment activity is likely to continue as Singapore offers a "safe haven" to park excess funds, she said.

    "Whether yield numbers increase, stagnate or dip, it will not deter many intent and 'aspirational' investors, unless yields consistently drastically dip across the board," added R'ST's Mr Ong.

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  2. #2
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    Default Condo rental yields break psychological support

    http://www.businesstimes.com.sg/arch...pport-20130713

    Published July 13, 2013

    Condo rental yields break psychological support

    Overall gross median yields at 3.9% against 4.2% in 2012, 4.4% in 2011

    By Mindy Tan

    [email protected]


    RENTAL yields for condominium apartments have fallen below the psychological 4 per cent support level, registering an overall gross median rental yield of 3.9 per cent for the first half of 2013.

    This compares with overall gross median rental yields of 4.4 per cent and 4.2 per cent in 2011 and 2012 respectively, according to data from the Singapore Real Estate Exchange (SRX).

    On a year-on-year basis, Southern Islands - which primarily cover the Sentosa Cove area - experienced the largest fall in rental yields (28.4 per cent), followed by Orchard (28 per cent) and Jurong East (17.4 per cent).

    "The decline is more significant in the Southern Islands and Orchard planning areas as the tenant demand in these areas tends to rely more heavily on expatriates," noted Lee Lay Keng, head of Singapore research at DTZ.

    While prices of non-landed residential properties have risen in the first half of the year, the rental market has remained weak against a backdrop of companies cutting corporate budgets in hiring expatriates and the government's initiatives to restrict foreign labour inflow.

    "In addition, as developments in Sentosa are not subject to the Qualifying Certificate conditions, developers are able to lease out unsold units, adding on supply-side pressure on rents in the area," said Ms Lee.

    Southern Islands experienced the lowest rental yield of 1.7 per cent, followed by Newton's 2.2 per cent and Orchard's 2.6 per cent. Based on the three sample periods (2011, 2012, and H1 2013), both Southern Islands and Newton consistently recorded the lowest yields.

    Jurong on the other hand experienced a big drop in rental yield (17.4 per cent) because of the jump in resale prices, said Christine Li, head of research and consultancy at Orange Tee.

    "Due to the transformation of Jurong Gateway and the increased commercial activities in the vicinity, there has been some investment interest in the area. As a result, resale values have gone up," she said.

    The data, which captured rental yields in 34 planning areas - the study focused only on planning areas that saw more than 30 rental transactions in the first half of this year - saw only two planning areas post increases.

    Downtown Core and Outram saw their rental yields increase by 3.4 per cent and 6.0 per cent respectively, according to SRX. Overall gross median rental yields in the Downtown Core were at 3.7 per cent, while yields in Outram were at 4.6 per cent.

    One possible reason for yields in the Downtown Core rising could be that Marina Bay Financial Centre is taking shape and positive hiring intentions remain high especially in the wealth management sector, said Orange Tee's Ms Li.

    "As a result, jobs are being created and the take-up rate of leasing units in the CBD is fairly strong given the limited supply at the moment," she said.

    "Most of the units are smallish and the rental quantum is still affordable even though many expatriates are put on local terms."

    Taking into account the current private residential market's high prices, an average rental gross yield of 3 per cent is perceived as a reasonably good level especially for private residential units in fairly popular areas, said Knight Frank's research head Alice Tan.

    "A gross yield of 4 per cent could only be achievable for smaller apartments or shoebox units, or for residential units at suburban locations that could fetch fairly decent rents," she said.

    Despite a noticeable decline in rents, non-landed private residential rental transactions remained steady in H1 2013.

    A total of 13,710 rental transactions took place in the first half of 2013. This was comparable with H2 2012's 13,691 transactions and H1 2012's 13,656 transactions.

    Looking ahead, DTZ's Ms Lee said further supply-side pressure can be expected.

    With a new record of more than 16,000 completions expected this year, competition for tenants will increase resulting in supply-side pressure, she said.

  3. #3
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    power of MM!

  4. #4
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    Power of downtown core MM

  5. #5
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    Quote Originally Posted by AK47
    Power of downtown core MM
    Central Area of downtown core is even more powerful.
    "Never argue with an idiot, or he will drag you down to his level and beat you with experience."

  6. #6
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    Yield as a percentage figure is nice for bragging rights. Dont forget to look at net cashflow returns.
    click: 🏢shoeboxmickeymousehouse 🏢

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