http://www.businesstimes.com.sg/arch...-2014-20140807
Published August 07, 2014
Gross rental yields in uptick for first-half 2014
But this may change, with supply of condo units coming
By Lynette Khoo
[email protected] @LynetteKhooBT
[SINGAPORE] With the recent resale prices of private condos falling at a faster clip than rents, gross rental yields picked up in the first half of this year in all regions across Singapore, after having slid since 2009.
Going by Urban Redevelopment Authority (URA) data compiled by STProperty, the recovery was led by suburban areas, especially the north-east.
Market watchers say that this rebound is likely to be a blip, as the leasing market is softening and vacancy rates are on the rise.
They reckon that, with buyers of private homes being more driven by the prospects of capital appreciation than by gross yields, the slight improvement in yields is unlikely to influence their buying decisions.
The report by STProperty yesterday derived median gross rental yield in each planning area based on the annualised median gross rent per sq ft and the median resale price per sq ft for that area, which implicitly assumes that units being rented out can fetch those resale prices based on recent transactions.
It showed gross rental yields in the north-east region recovering to 4.03 per cent in the first half of this year, up from 3.73 per cent last year. Yields for the entire north region inched up to 4.14 per cent from 3.90 per cent last year.
The central area recorded the smallest improvement in yields to 3.39 per cent, from 3.37 per cent last year.
Topping the list of planning areas are Ang Mo Kio, Yishun and Sembawang in the north, followed by north-eastern areas Sengkang and Hougang. Six planning areas attracted rental yields of 4 per cent or more, including Geylang, which came in sixth.
The lowest-yielding areas are the prime locations, including Orchard, Newton, Tanglin, River Valley, the Southern Islands (Sentosa Cove) and Bukit Timah. Homes in the Orchard area attracted the lowest gross rental yield of 2.7 per cent.
Commenting on the report, property consultants said this dynamic could shift, with the huge supply of completed condos coming onstream, mainly in the suburbs.
Ong Teck Hui, the national research director at JLL, said this year and the next a significant supply of units will enter the rental market, with this coming at a time when expatriate hiring and leasing demand has moderated.
"The oncoming supply is strongest in the suburban market, and as suburban prices are expected to ease more gradually than in the prime market, it is possible to see suburban yields weaken again if suburban rents fall faster than capital values," he said. "Due to the weakness of the prime sales market, capital values are expected to decline more significantly, so we could see a more stable or slightly improving yield trend for this sub-market."
OrangeTee research head Christine Li projects some upside in rental yields in suburban areas this year, as prices correct further ahead of a "significant downward pressure" next year and in 2016.
Gross yields are typically higher in suburban areas by virtue of the fact that most suburban condos are 99-year leasehold properties that fetch lower prices than freehold properties in the prime central area, said SLP International executive director Nicholas Mak.
Investors are ultimately seeking stable and sustainable yields, he added, and their property purchase will have to take into account borrowing costs, operating expenses and property tax.
"Ideally, investors would want to invest in a property that can generate net positive cash-flow," he said.
But rising vacancy rates and the difficulty of securing tenants are weighing on the minds of investors, on the back of URA data showing vacancy rate islandwide spiking to 8.3 per cent in the second quarter; this was higher than the 7.3 per cent in the third quarter of the 2009 recession year.
R'ST Research director Ong Kah Seng said: "Most buyers are not really judging on yields to buy a private home. When price falls substantially, investors or buyers are more inclined to assume higher vacancy risks."
JLL's Mr Ong said that to derive actual net yields that factor in all costs and taxes related to renting out a condo unit, a basket of transacted units is required to track rents and resale prices over time.
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