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Condo rental yields break psychological support

Overall gross median yields at 3.9% against 4.2% in 2012, 4.4% in 2011

Posted on 13-Jul-2013
By: Mindy Tan

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Condo rental yields break psychological support


RENTAL yields for condominium apartments have fallen below the psychological 4 per cent support level, registering an overall gross median rental yield of 3.9 per cent for the first half of 2013.

This compares with overall gross median rental yields of 4.4 per cent and 4.2 per cent in 2011 and 2012 respectively, according to data from the Singapore Real Estate Exchange (SRX).

On a year-on-year basis, Southern Islands - which primarily cover the Sentosa Cove area - experienced the largest fall in rental yields (28.4 per cent), followed by Orchard (28 per cent) and Jurong East (17.4 per cent).

"The decline is more significant in the Southern Islands and Orchard planning areas as the tenant demand in these areas tends to rely more heavily on expatriates," noted Lee Lay Keng, head of Singapore research at DTZ.

While prices of non-landed residential properties have risen in the first half of the year, the rental market has remained weak against a backdrop of companies cutting corporate budgets in hiring expatriates and the government's initiatives to restrict foreign labour inflow.

"In addition, as developments in Sentosa are not subject to the Qualifying Certificate conditions, developers are able to lease out unsold units, adding on supply-side pressure on rents in the area," said Ms Lee.

Southern Islands experienced the lowest rental yield of 1.7 per cent, followed by Newton's 2.2 per cent and Orchard's 2.6 per cent. Based on the three sample periods (2011, 2012, and H1 2013), both Southern Islands and Newton consistently recorded the lowest yields.

Jurong on the other hand experienced a big drop in rental yield (17.4 per cent) because of the jump in resale prices, said Christine Li, head of research and consultancy at Orange Tee.

"Due to the transformation of Jurong Gateway and the increased commercial activities in the vicinity, there has been some investment interest in the area. As a result, resale values have gone up," she said.

The data, which captured rental yields in 34 planning areas - the study focused only on planning areas that saw more than 30 rental transactions in the first half of this year - saw only two planning areas post increases.

Downtown Core and Outram saw their rental yields increase by 3.4 per cent and 6.0 per cent respectively, according to SRX. Overall gross median rental yields in the Downtown Core were at 3.7 per cent, while yields in Outram were at 4.6 per cent.

One possible reason for yields in the Downtown Core rising could be that Marina Bay Financial Centre is taking shape and positive hiring intentions remain high especially in the wealth management sector, said Orange Tee's Ms Li.

"As a result, jobs are being created and the take-up rate of leasing units in the CBD is fairly strong given the limited supply at the moment," she said.

"Most of the units are smallish and the rental quantum is still affordable even though many expatriates are put on local terms."

Taking into account the current private residential market's high prices, an average rental gross yield of 3 per cent is perceived as a reasonably good level especially for private residential units in fairly popular areas, said Knight Frank's research head Alice Tan.

"A gross yield of 4 per cent could only be achievable for smaller apartments or shoebox units, or for residential units at suburban locations that could fetch fairly decent rents," she said.

Despite a noticeable decline in rents, non-landed private residential rental transactions remained steady in H1 2013.

A total of 13,710 rental transactions took place in the first half of 2013. This was comparable with H2 2012's 13,691 transactions and H1 2012's 13,656 transactions.

Looking ahead, DTZ's Ms Lee said further supply-side pressure can be expected.

With a new record of more than 16,000 completions expected this year, competition for tenants will increase resulting in supply-side pressure, she said.

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