Thursday, March 14, 2013

Bright spots amid dip in yields

The Straits Times - March 9, 2013
Areas with shoebox units, like Balestier and Thomson, yielding good returns

CITY fringe rental yields have softened but landlords in areas like Balestier, Thomson and Outram are still reaping good returns.

These areas are home to many shoebox apartments, which are popular with tenants looking for a more affordable place to live in.

This has resulted in rental yields of around 5 per cent, while overall yields for city fringe homes dipped to 3.6 per cent in the fourth quarter of last year - down from 3.8 per cent at the start of that year.

Median monthly rents, however, rose to $3.88 per sq ft (psf) from $3.66 psf in the same period, Square Foot Research said yesterday.

The best performers were Balestier and Thomson, in the Novena planning area, with yields of 5.3 per cent in the fourth quarter, thanks to the high psf rents inked by shoebox apartments of 500 sq ft and less. The Outram and Rochor planning areas were second, with yields of 4.4 per cent, while Queenstown apartments pulled in 4.1 per cent.

Square Foot Research director Ooi Yi Tung noted that Balestier projects like Prestige Heights and The Verve - both with plenty of shoebox units - had pulled up rental yields in the area.

Prestige Heights, where about 130 of its 154 units are shoebox flats, had yields of 5.4 per cent in the three months to Dec 31.

Median rents for the development, completed in 2011, were $7.42 psf a month over the past six months.

There were 29 leases inked for flats ranging from 300 sq ft to 400 sq ft in the September to February period, with monthly rents averaging $2,466, the firm noted.

ERA Realty key executive officer Eugene Lim said shoebox apartments are seeing good rents as the completed stock is mostly in and around the city, convenient locations that appeal to foreigners with a smaller rental budget.

But the best-yielding project in the city fringe region - and in all of Singapore - was People's Park Complex, with a yield of 6.9 per cent. Completed in 1972, the 99-year leasehold project in the Outram area fetched average prices of $858 psf and a median rental of $4.95 psf a month in the fourth quarter last year.

Standout performers like that cannot hide the overall trend, which is a slight decline in yields.

Experts note that they have fallen despite an increase in rents because average resale prices have increased at a faster pace than rental growth.

Yields are expected to be squeezed further as price growth moderates and more homes hit the market over the next few years. The city fringe region had 10,000 unsold units as of Dec 31, most of them uncompleted, Square Foot Research noted.

HSR Property Group special adviser Donald Han said city fringe rents might fall by 2 to 3 per cent in the second half of the year compared with the same period last year as more completed units come onto the market.

"With companies reducing housing budgets due to the slower economy, this will impact leasing demand in the city centre. But it will also affect demand to a certain extent in the city fringe region," he added.

Data from the Singapore Real Estate Exchange (SRX) yesterday also showed a 0.1 per cent overall dip in rental yields last month compared with January.

Gross yields for the city fringe region softened 0.2 percentage points to 3.8 per cent in the same period while rents fell by 1.9 per cent, SRX noted.

"With rents moderating, yields have fallen and this may have a downward impact on property prices as the year unfolds," ERA's Mr Lim added.

Martin Koh | 86666 944 | R020968Z
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DTZ Property Network Pte Ltd (L3007960A)

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