Fewer tenants + Sky-high prices = Lower rental yields

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.

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.

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. 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.

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, there is a possibility of an oversupply.

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.

Source: The Straits Times – 23 June 2012