top of page
Search
  • Writer's pictureSerene Phua

Which is more important? Rental Yield or Rentability of a property?




Property investment goes a long way back. In the past, it was viewed as a hobby that only the very very rich people can afford. Nowadays, property investment has become quite common, many of my clients have at least one investment property under their property portfolio.



Property investment is one way of achieving financial freedom for many should this investment be managed well.


Rental income collected from property investments is a source of passive income and profit can be cashed out from selling the property when the property market is good.



Before the different types of cooling measures kicked in, it was much easier for Singapore Citizens, Singapore Permanent Residents and even foreigners to purchase multiple residential properties in Singapore for investment. At that time, there were no restrictions on property purchases at all.


It was shared by the seniors in our business that during those days, investors were

not subjected to Total Debt Servicing Ratio (TDSR), the requirements for bank loans approval were not as stringent before any property purchases, many property agents then will purchase multiple properties during new launches.


These agents will then use different methods to inform property owners that they have such properties available on hand and sell it as a subsale property, earning the huge profits from such transactions.


This is most likely one of the reasons our Government stepped in and the cooling measures are imposed.


Currently, one major consideration by many investors making property investment decisions, is the requirement to pay Additional Buyer Stamp Duties (ABSD), on top of the Buyer Stamp Duties (BSD). The amount of ABSD payable is dependent on the residential status of the purchaser as wel as the number of properties they own during the point of property purchase.


This tax imposed by Singapore Government, was initially introduced on 7 December 2011 as a cooling measure to the residential property market. Even with this cooling measure, residential property prices continued to escalate further in the years to come. So, within a span of 2 years, ABSD was revised upwards on 12 Jan 2013, with the latest upwards revision on 6 July 20198. Below is a table for your reference:

ABSD is payable by the purchaser, depending on the purchaser’s citizeship and the number of property the purchaser is holding during the point of purchase. Below is an illustration on the current ABSD payable for your reference:


 

Now, let’s move forward, you have decided that you are ready to go into property investment. Which property should you purchase? We are talking about a lot of money here for this property purchase, I am quite certain you would not want to make a costly mistake.


Before we discuss further, do allow me to share a friend’s story.

I remembered when I first started out in my real estate career about 9 years ago. I got a phone call from a friend who sounded really excited when I answered his call. “Hey, you wouldn’t believe this! I just got my first investment property. I had a tight budget but I still managed to purchase this private property in the east area, freehold 4 bedder unit at a really good price with a high rental yield!!” About three and a half years later after this call, my friend approached me to sell off this investment unit he got, which came as a surprise to me. His intention was to market the unit and sell off once he is not liable to pay the Seller’s Stamp Duties (SSD) at the fourth year mark. I was puzzled.


The question kept popping in my mind: Why???

I mean, with the high rental yield he claimed, I thought he would hold onto the unit for a longer period of time.

We had a discussion on the property sale, he shared with me the reasons he wanted to let go of the property. The rental yield was not exactly high as the seller told him. He bought the unit directly from the seller, who was actually his friend in the process of migrating at that point of time. It was not easy for him to get a tenant each time, due to the inaccessibility of that property, most people found the place inconvenient. I understood from him that the vacant period was almost six months at one point. He wanted to let go of the property to purchase another one that will be able to get him a more stable rental income.

Now the question is, do we only look at rental yield? Does a higher rental yield equates to higher net profit from my rental income? Or should you also consider the rentability of your investment unit?



When we speak about gross rental yield, this is the rental income you get from renting out your property.


Example:

An investment property was purchased at $900,000/- and the new tenant is paying a monthly rental of $3,200/-.

Rental Yield = ($3,200*12 / $900,000)*100% = 4.2%


In Singapore, should you be able to get a gross rental yield of anything above 3.5% is considered pretty high. 😊


Rentability is how fast the property gets rented, ensuring the steady stream of rental income. High rentability is when units have no windows of vacancy, it gets rented out before the existing tenant leaves. Rentability is low when the property take a long time to get a tenant despite constant marketing efforts.

High rental yield can be achieved when investment properties are purchased at a lower price with no difference in the rental income with other re


ntal transactions. This is when the investment property has a shorter remaining lease, such as 25 years lease left. But, with a 25 years lease left, the condition of the property could be either pretty run-down or may not be in the most favourable condition to live in.




With this, it will be pretty challenging to rent out the unit, resulting in several months of vacancy that also means loss of rental income.



 

Let us look at an illustration on the rental yield and rentability for similar private property units in different parts of Singapore.


Estella Gardens is a freehold project built in 1999 located at Floral Drive while Dover Parkview is a 99 years leasehold project built in 2000 located at Dover Road.

On the average, the rental yield for Estella gardens is between 2.6 to 2.9% and the rental yield for Dover Park View is 3.2 to 3.5%. Looking at the figures, we can easily tell that which project has a higher rental yield.


For a clear understanding, I would like to emphasise that both projects I am comparing are about the same age and both are of a certain distance to the nearest MRT stations.


Dover Park View is located to many schools, both international school and tertiary institutions, Biopolis and NUH. The tenant profile mix in Dover Park View are typically people studying in World United College or professionals working in Biopolis. These tenants prefer to stay near to their workplace as they can commute to their work location in Biopolis either by walking or cycling.


Many tenants who rent in Estella Gardens are executives or professionals working in Loyang Industrial area or Changi Business Park. These places are still a distance from the condominium, short bus rides are still necessary in order to reach.


I am able to use these two projects as an illustration as I was asked to rent out 2 units around the same time for Estella Gardens and Dover Park View. It took me around three months to find tenants for my landlord; Dover Park View unit took a shorter time of one month to get a suitable tenant.


From the above, I hope it gives you a clearer understanding on rental yield and rentability.

Property investment has many factors to consider: rental yield, rentability, the potential tenant pool around the property, the maintenance of the unit, etc.

It is advisable not to make a hasty decision just by looking at the rental yield, look at all the other factors before committing to any property purchase.


Would like to find out more? Keen to explore more on how you can look into growing your property portfolio? Call me.




 

Need advice on your property portfolio?

Need assistance to buy/ sell/ rent your property?


Select your convenient date and time for me to share more with you in details on Property Wealth Planning.


 

About The Author

Serene is the Senior Associate Director of Orange Tee & Tie and has been in the real estate business since 2013. Through the years, she has assisted many clients in their different property needs. Many of these clients eventually become her friends over the years, something that she is very thankful for.

She is a fan of TV serials, Hong Kong, Taiwan, not forgetting local productions too. Singing is her way of releasing stress, especially with her ktv khakis. Whenever she gets to travel, her number one choice is definitely Taiwan, the food and the shopping is awesome! :)

She is also a mother to two lovely girls , elder sister is a bubbly 7 years old girl with the younger one coming to the terrible 2 this year. They are both her pride and joy, the elder one often helps out in the little things such as folding mailers in Serene's real estate business too.

54 views0 comments

Recent Posts

See All

Comments


bottom of page