Discover the Singapore Property Yield: Maximizing Your Property Investment Returns

Are you considering investing in Singapore’s property market? If so, it’s important to understand the concept of property yield and how it affects your investment decisions. Property yield is the annual return on investment generated by a property, expressed as a percentage of its total value.

In Singapore, the property yield varies depending on the type of property and its location. Understanding the different factors that affect Singapore’s property yield is crucial for making a wise investment decision.

In this blog, we’ll explore the ins and outs of Singapore property yield and provide you with insights to help you navigate the market. So, whether you’re a seasoned investor or a novice, keep reading to learn more about Singapore’s property yield.

Property Yield calculation formula

Calculating the rental yield of a property is important for investors looking to generate rental income and increase their return on investment. The formula to calculate rental yield involves knowing your probable rental income and deducting any operating costs, such as property tax, maintenance bills, and commission fees. Gross rental yield is calculated by dividing the annual rental income by the property value. Net rental yield takes into account the operating costs.

To calculate net rental yield, first calculate the gross rental income. Then, factor in the yearly operating costs, such as property tax and maintenance bills. Deduct those from the gross rental income. Finally, divide the net rental income by the property value. It is important to be conservative in estimations and allow for some margin of error. 

When evaluating the potential returns on a property investment, one crucial factor to consider is the rental yield. Rental yield is determined by dividing the property’s annual rental income by the total cash outlay, with deductions made for all associated costs to obtain the net rental yield.

Calculating Rental Yield for Properties Purchased in Full Cash

Let’s explore two examples to illustrate the process and significance of rental yield:

Property	Property Price (SGD)	Gross Rental Income (SGD/month)	Additional Costs (SGD/month)	Gross Rental Yield (%)	Net Rental Yield (%)
Property A	$200,000	$1,000	$250	6%	4.5%
Property B	$250,000	$1,500	$500	7.2%	4.8%

Analyzing the Results:

Comparing the two examples above, property B emerges as a superior investment option due to its higher net rental yield when compared to property A. By achieving a greater return on your investment, property B presents a more lucrative opportunity for maximizing your rental income.

Increase in Foreign Interest in Singapore Property Market

Foreign interest in the Singapore property market has been on the rise in recent years, with the country being a popular destination for property buyers from around the world. Singapore’s reputation as a safe and stable haven for both political and economic reasons has attracted many foreigners seeking to invest in real estate. However, it is important to note that foreign buyers are not the only factor driving the Singapore property market. Factors such as low mortgage rates, rising incomes, and stable economic conditions have also contributed to the growth of the real estate sector.

Despite the COVID-19 pandemic’s impact on global travel, Singapore continues to be an attractive destination for foreigners seeking to invest in property. The country’s political stability, thriving business environment, and high quality of life have made it a popular choice for buyers from China, the United States, and other countries. Nevertheless, local demand for property remains strong, with Singaporeans accounting for the largest proportion of property buyers. Increasing numbers of wealthy Singaporeans are investing in real estate assets, contributing to the spiraling property prices that have led the government to introduce cooling measures to maintain market stability. As the Singapore economy continues to recover from the pandemic, the real estate market is expected to remain strong with both local and foreign buyers continuing to show interest in the market. 

Singapore Ranks 4th Globally in Rental Industry

Singapore’s robust rental industry is ranked 4th globally, behind New York, Abu Dhabi, and Hong Kong. With over 30,000 international companies located in Singapore, it is not surprising to find a strong rental market buoyed by foreigners who work here. Singapore’s rental market is attractive, with a relatively low tax rate and strong government support for investments in technology.

Compared to other major cities around the world, Singapore’s rental rates are relatively affordable. Among all the 28 districts within Singapore, district 6 had the highest median rental yield at $6.96 psf, while district 26 had the lowest at $2.16 psf. The rest of the more popular districts such as 1, 9, 10, 11, and 15 had median rents ranging from $3.08 to $4.94 psf. Although lower than district 6, these median rents are still higher than most other districts, which is an indication of the attractiveness of those areas. It is important to note that the figures in average and median rents hardly provide real returns on a property. To determine a property’s estimated rental returns, one must calculate the median rental yield expressed as a percentage of the annualized rent over the property’s transacted price. Overall, Singapore’s rental industry is competitive with properties varying in shapes and sizes, making it easier for investors to find suitable investments at reasonable rental rates. 

District 6 Has the Highest Median Rental in Singapore

Singapore’s District 6 boasts the highest median rental in the country at $6.96 per square foot. It includes part of Beach Road, one of the oldest streets in Singapore, with numerous national landmarks that have been repurposed for modern use. The central location of District 6 makes it an attractive area for both residential and commercial purposes. With easy access to the Central Business District and the famous Orchard Road shopping area, it attracts residents who value both work and play.

In contrast, District 26 has the lowest median rental in Singapore at $2.16 per square foot. Although it includes popular attractions like Bishan Park and Kong Meng San Phor Kark See Temple, the area is much further from the city and has fewer amenities. The lower accessibility and amenities contribute to the lower median rental rate. However, other popular districts like 1, 9, 10, 11, and 15 still have median rentals that are higher than most other districts, indicating their attractiveness to renters. Ultimately, the median rental yield, expressed as a percentage of the property’s annualized rent over its transacted price, provides a better indication of a property’s rental returns. 

Lower Accessibility and Amenities Contribute to Lower Rental Yield

Lower accessibility and amenities contribute to lower rental yield in Singapore. Properties located in prime locations near MRT stations, shopping malls, and other amenities typically have higher rental yields. On the other hand, properties located in areas with limited amenities and poor accessibility may have lower rental yields.

Investors should consider the location of the property before investing since it can significantly impact the rental yield. Properties in areas with good transport connections are likely to attract more tenants, resulting in higher demand and rental income. For example, properties located near upcoming transport infrastructure developments like new MRT stations may have higher rental yields in the future. In contrast, properties in remote areas may have lower rental yields due to limited amenities and lower demand.

In summary, location is a crucial factor to consider when assessing property investments. Investors should balance accessibility and amenities with rental yield to determine the overall potential return on investment. While lower accessibility and amenities may result in lower rental yields, they may be suitable for investors seeking long-term capital gains or those looking to diversify their investment portfolio. 

Rental Demand Higher in Properties Nearer the City

Rental demand in Singapore is currently higher in properties that are located near the city. This is because these areas are more accessible and offer a plethora of amenities for residents. District 6, which includes High Street and Beach Road, has the highest median rental at $6.96 per square foot, making it a popular choice among renters. The area is located near the central business district and Orchard Road shopping area, allowing residents to easily commute to work and leisure activities.

In contrast, District 26, which comprises Lentor, Mandai, and Springleaf, has the lowest median rental at $2.16 per square foot. The area is located much further away from the city and does not offer the same level of accessibility and amenities as District 6, contributing to its low rental rates. Despite this, other popular districts such as 1, 9, 10, 11, and 15 still command relatively high median rents of $4.94, $4.24, $3.48, $3.53, and $3.08 per square foot, respectively. In conclusion, for property owners looking to invest in rental properties in Singapore, it is important to consider the location and amenities of the property to attract renters and achieve the best return on investment. 

Historical Rental Yield in Singapore on a Downtrend

The average rental yield for residential properties in Singapore is around 2.5% per annum, which is dependent on the location and demand for rental units. However, according to Square Foot Research, the historical rental yield in Singapore has been on a downtrend. Despite this trend, serious property investors can find optimal investment properties with higher yields by hunting down older properties in high demand rental locations. Besides, property prices play a more significant role than rental yields in property investment since lower-priced properties can generate above-average yields. 

With that said, rental yields are only part of the equation to property investment as it does not include the property’s capital appreciation or resale value. To achieve financial freedom, property investors need to adopt processes like the Buy, Refurbish, Refinance, and Repeat (BRRR) to invest in cities and locations worth investing in. The selected properties must also have high capital growth and positive cashflow, with rental yields substantially higher than the mortgage interest. By adopting these strategies, investors can achieve their financial goals and explore globalising their property portfolio. 

Gross Rental Yield vs. Net Rental Yield

When investing in properties, it’s important to know the rental yield. Rental yield is the annual return on investment from renting out the property. There are two types of rental yield, gross rental yield and net rental yield. Gross rental yield is the percentage of rental income against the property’s value. Meanwhile, net rental yield considers the property’s expenses like property tax, maintenance costs, and commissions.

Calculating gross rental yield is straightforward. Divide the property’s annual rental income by the property’s market value, then multiply it by 100 to get the percentage. Net rental yield is a bit more complex. First, calculate the gross rental yield, then subtract the property’s expenses from the rental income, and divide it by the property’s market value.

Knowing the difference between gross and net rental yield is important. Gross rental yield only gives an idea of the property’s potential income, while net rental yield gives a more accurate picture of the financial gain or loss from renting out the property. It’s essential to calculate both when assessing the property’s profitability and determining if it’s a good investment. 

Rental Yield is Only Part of the Equation to Property Investing

When it comes to property investing, rental yield is an important factor, but it is only part of the equation. Rental yields are calculated based on the annual rental income relative to the property purchase price. This means that you can increase your yields by finding an older property in a location with high demand for rental units. However, serious property investors need to put in the effort to hunt down optimal investment properties that could generate higher yields.

It is important to note that rental yield does not include capital appreciation or the resale value of a property. With the right approach, your investment property could appreciate in value over time or undergo an enbloc process, resulting in a good profit. To achieve financial freedom through property investing, it is recommended to use the BRRR process, which stands for Buy, Refurbish, Refinance, and Repeat. This is the basic requirement that determines whether a city or location is worth investing in. 

The properties selected must also fulfill two requirements: high capital growth and positive cashflow, with rental yields substantially higher than the mortgage interest. Therefore, rather than focusing solely on rental yield, it is important for property investors to consider all factors, including property prices, capital appreciation potential, and enbloc opportunities. 

BRRR Strategy for Achieving Financial Freedom in Property Investing

The BRRR method is a popular real estate investing strategy that can help investors achieve financial independence. It involves buying a property, rehabilitating it to increase its value, renting it out for passive income, refinancing it to pull out equity, and repeating the process with another property. This method can be a powerful tool for building wealth over time, but it’s essential to understand the risks involved and consult with a financial advisor.

To begin, investors need to find and purchase a property with potential for value appreciation. They can do this through traditional real estate channels or off-market deals. The next step is to rehabilitate the property, making repairs, updates, and renovations to increase its appeal to renters and its resale value. 

Once the work is complete, the property can be rented out to generate passive income. The next step is to refinance the property, taking out a new loan using its increased value as collateral to pull out equity. Finally, investors can repeat the process with another property to continue building their real estate portfolio.

With the right strategy, real estate investing can be a powerful tool for achieving financial freedom and building wealth over time. However, it’s essential to do thorough research, understand the risks involved, and consult with a financial advisor before making any investment decisions. By following the BRRR method, investors can take advantage of the potential rewards of real estate investing while minimizing their risks. 

Jeff’s Preference for Rental Yields of 6% on Top of Capital Appreciation

When it comes to property investing, rental yield is an important factor to consider. In Singapore, the average rental yield for residential properties is around 2.5% per annum. However, Jeff, a property investing trainer, prefers to hunt for rental yields of at least 6%. This may seem high, but he believes it’s achievable by investing in markets with high demand for rental units and focusing on older properties that offer lower purchase prices.

It’s important to note that rental yield is not the only factor to consider when investing in property. Jeff also looks for properties with high capital growth and positive cash flow. He uses a process called BRRR (Buy Refurbish Refinance Repeat) to achieve financial freedom. By buying properties that are undervalued and need refurbishing, he can increase their value and refinance them to free up cash for further investments.

In conclusion, while rental yield is a critical factor in property investing, it’s essential to look at other factors such as capital growth and cash flow. Jeff’s preference for a rental yield of 6% on top of capital appreciation may seem high, but it’s achievable by focusing on specific markets and using creative investment strategies like the BRRR method. It’s essential to research the market thoroughly and put in the effort to hunt down optimal investment properties that could generate higher yields and long-term returns.