Condo rental yield dips below 4%

SINGAPORE — Non-landed private residential rental yield fell below 4 per cent last year, the Singapore Real Estate Exchange (SRX) said today (Jan 17).

Overall, the median gross rental yield for non-landed private residential properties dropped from 4.2 per cent to 3.9 per cent last year.

“For many investors seeking income from residential properties, 4 per cent is a psychological barrier when it comes to rental yields,” Mr Jeremy Lee, co-founder and Chief Technology Officer of SRX said.

“They generally seek yields above 4 per cent in order to justify the risks inherent in property as an asset. Below 4 per cent, investors worry that inflation will wipe out their gains.”

Of the 34 planning areas in Singapore, 31 experienced a weakening in median gross rental yields, contributing to the overall decline.

“In the past two years, low interest rates have increased the willingness of some property investors to accept lower rental yields,” Mr Nicholas Mak, SLP International’s executive director said.

On a planning area basis, four lower tier locations in prime areas, including Orchard, Tanglin, Southern Islands (Sentosa Cove) and Newton saw gross rental yields below 3 per cent, with Newton the lowest at 2.1 per cent.

“In the prime areas, the cost of homes is out of balance with the rents they command,” Mr Lee said. “The homes are relatively expensive because of their location. At the same time, there is downward pressure on rents, caused, in part, by the shrinking or disappearance of expatriate housing allowances.”

Outram, Yishun, Geylang, Tampines, and Jurong West registered gross yields of 4 per cent or above, with Outram’s spiking up to 5.1 per cent from 4.6 per cent in the first half of the year.

Planning areas Downtown Core, Southern Islands and Outram saw their rental yields increase by 2.5 per cent, 15.5 per cent and 16.8 per cent respectively.

Southern Islands, which covers primarily the Sentosa Cove area, saw a slow start of a 1.7 per cent yield during the first six months of last year. By years end, its rental yield improved to 2.7 per cent.

“A possible reason for the increase in residential rentals in these three planning areas is that they are at the city fringe, and there was very little new supply of completed private housing units in 2013. This shows the rental demand in certain city fringe locations is still healthy,” said Mr Mak.

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