Sunday, August 21, 2011

Some homes still fetch good rental yields

RENTAL properties are less profitable for landlords in these tougher economic times, but there are still some condos where yields can reach 5.7 per cent.

Adam Park Condo, Blossoms@Woodleigh, Far Horizon Gardens and The Jade all have yields above 5 per cent.

Areas such as Sengkang, Woodlands and Chua Chu Kang have yields ranging between 4.4 per cent and 4.8 per cent, according to a study by Kim Eng Research.

They are all above the national average of 3.7 per cent, down a touch from last year's 3.9 per cent average yield.

But prime areas such as Orchard, Newton and Sentosa failed to measure up, with yields between 2.4 per cent and 2.8 per cent.

Rental yield is the annual rent divided by the property's sale price.

Kim Eng analysed gross yields based on the Urban Redevelopment Authority's rental and caveat data for non-landed developments with at least 10 rental contracts signed in the second quarter of this year.

Market experts say the quantum prices of properties in a neighbourhood play a significant role in determining the average rental yield.

'If you buy a mass-market home for $1.5million, you might be able to get between $4,000 and $6,000 in rent, depending on location,' said Dennis Wee Group director Chris Koh. 'That's compared to a Sentosa place that could cost up to $3 million and bring in only $8,000 a month,'

ERA Realty key executive officer Eugene Lim said leasehold properties are normally cheaper than freehold ones. Many leasehold properties are in suburban neighbourhoods, so this may have helped lift rental yields.

'Tenants aren't concerned about whether a property is freehold or has a 99-year lease. All they want is somewhere that looks nice in a convenient location,' said Mr Lim.

Shoebox units, typically less than 500 sq ft in size, come with lower sale prices.

Kim Eng cited Parc Imperial, a 138-unit Pasir Panjang project near the upcoming Haw Par Villa MRT station that comprises mainly smaller flats. The project has a rental yield of 5.7 per cent. Resale units recently sold for an average of $1,333 psf, with median rents hitting $6.28 psf per month.

Attributes like proximity to good schools, MRT stations and other facilities will always stand investors who are chasing good rental yields in good stead, said Mr Koh.

But predicting how rental yields will pan out over the next few quarters is difficult because there are several big unknowns.

Analysts say the fluidity of the property market means some investment decisions may change over time, making it tricky to pinpoint exactly how many properties will come up for rent.

'Investors may get an apartment with the intention to flip it, but if they can't sell it at the price they want they'll rent it out instead,' said Mr Colin Tan, head of research at Chesterton Suntec International.

He pointed out that property prices could be close to or at their peak, and that there is uncertainty over how long low interest rates will last.

'Risk levels remain high, but if all the factors work out in their favour, the returns for these investors will be good,' he said.

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