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23-06-2012, 09:57 PM
The Straits Times
Jun 23, 2012
Fewer tenants + Sky-high prices = Lower rental yields
Returns slide to levels not seen for nearly 12 years
By Esther Teo
SKY-HIGH prices and a plentiful supply of stock have driven rental yields of private homes down to levels not seen for almost 12 years.
Overall gross yields were just 3.8 per cent in March, unchanged from December, according to property research firm Square Foot Research.
Apart from a one-off dip last September, when yields hit 3.7 per cent, rental returns have not been this low since December 2000.
Levels vary across the island. While some mass-market projects are enjoying higher than average yields of 5 per cent or more, there are some inner-city apartment blocks with returns of only 1.9 per cent.
Square Foot Research director Ooi Yi Tung said the huge supply of completed homes expected in the next few years could push yields down even further if demand does not increase in tandem.
'Especially in view of the expected slowdown in bringing in foreigners, a higher supply of completed units leads to a higher level of competition over a limited pool of tenants,' he said. 'This might result in a fall in rental rates if rental demand stays the same or dips.'
But other experts say that while gross yields have been falling, net yields have remained fairly stable as interest rates are at record lows.
They add that while rental demand is expected to remain healthy this year, yields might come under pressure in 2014 and 2015 when a record number of homes are due for completion.
HSR Property Group special adviser Donald Han said 55,000 homes are expected to be built in those years.
He warned that there is a 'potential storm brewing', especially if interest rates rise even as yields fall due to the generous supply of homes. Tighter immigration policies could compound the problem.
'But interest rates are less than 1.5 per cent now so even though yields are low, the investor is still getting decent returns,' added Mr Han.
Chris Koh International director Chris Koh noted that the high-end flat market also faces competition from older landed homes.
Citing the increasing number of HDB flats meeting minimum occupation periods and the surge of private completions, he said he is concerned about the possibility of an oversupply.
Major projects such as the recently completed 1,129-unit Reflections at Keppel Bay and 336-unit The Arte at Thomson are set to test the rental market this year, he added.
The one bright spot is in the mass market, where homes posted an average yield of 4 per cent. Aside from these suburban homes, properties in other areas earned yields of 3.5 per cent.
Square Foot Research said the higher-yielding properties are mostly 99-year leasehold projects in mass market districts where capital values are lower.
For instance, there are still a handful of mass market properties that yield 5 per cent and above, such as The Madeira in Bukit Batok, and Lakeholmz and Lakepoint Condominium, both in Jurong West.
City centre projects posted the poorest yields, likely because larger firms have imposed cost-cutting measures that have included putting expatriates on local packages, which has dampened demand for expensive rental homes.
Helios Residences in Cairnhill Circle, for example, had a yield of just 1.9 per cent while St Regis Residences in Tanglin Road pulled in only 2.5 per cent.
The analysis includes only projects with at least three transactions and 10 rental contracts signed in the quarter.
Experts added that high-end homes might bear the brunt of softening yields as most of these are bought as investments while suburban flats tend to be for owner-occupiers.
esthert@sph.com.sg
Jun 23, 2012
Fewer tenants + Sky-high prices = Lower rental yields
Returns slide to levels not seen for nearly 12 years
By Esther Teo
SKY-HIGH prices and a plentiful supply of stock have driven rental yields of private homes down to levels not seen for almost 12 years.
Overall gross yields were just 3.8 per cent in March, unchanged from December, according to property research firm Square Foot Research.
Apart from a one-off dip last September, when yields hit 3.7 per cent, rental returns have not been this low since December 2000.
Levels vary across the island. While some mass-market projects are enjoying higher than average yields of 5 per cent or more, there are some inner-city apartment blocks with returns of only 1.9 per cent.
Square Foot Research director Ooi Yi Tung said the huge supply of completed homes expected in the next few years could push yields down even further if demand does not increase in tandem.
'Especially in view of the expected slowdown in bringing in foreigners, a higher supply of completed units leads to a higher level of competition over a limited pool of tenants,' he said. 'This might result in a fall in rental rates if rental demand stays the same or dips.'
But other experts say that while gross yields have been falling, net yields have remained fairly stable as interest rates are at record lows.
They add that while rental demand is expected to remain healthy this year, yields might come under pressure in 2014 and 2015 when a record number of homes are due for completion.
HSR Property Group special adviser Donald Han said 55,000 homes are expected to be built in those years.
He warned that there is a 'potential storm brewing', especially if interest rates rise even as yields fall due to the generous supply of homes. Tighter immigration policies could compound the problem.
'But interest rates are less than 1.5 per cent now so even though yields are low, the investor is still getting decent returns,' added Mr Han.
Chris Koh International director Chris Koh noted that the high-end flat market also faces competition from older landed homes.
Citing the increasing number of HDB flats meeting minimum occupation periods and the surge of private completions, he said he is concerned about the possibility of an oversupply.
Major projects such as the recently completed 1,129-unit Reflections at Keppel Bay and 336-unit The Arte at Thomson are set to test the rental market this year, he added.
The one bright spot is in the mass market, where homes posted an average yield of 4 per cent. Aside from these suburban homes, properties in other areas earned yields of 3.5 per cent.
Square Foot Research said the higher-yielding properties are mostly 99-year leasehold projects in mass market districts where capital values are lower.
For instance, there are still a handful of mass market properties that yield 5 per cent and above, such as The Madeira in Bukit Batok, and Lakeholmz and Lakepoint Condominium, both in Jurong West.
City centre projects posted the poorest yields, likely because larger firms have imposed cost-cutting measures that have included putting expatriates on local packages, which has dampened demand for expensive rental homes.
Helios Residences in Cairnhill Circle, for example, had a yield of just 1.9 per cent while St Regis Residences in Tanglin Road pulled in only 2.5 per cent.
The analysis includes only projects with at least three transactions and 10 rental contracts signed in the quarter.
Experts added that high-end homes might bear the brunt of softening yields as most of these are bought as investments while suburban flats tend to be for owner-occupiers.
esthert@sph.com.sg
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