Proximity to MRT not essential for high rental yields!

Proximity to MRT stations not essential for high rental yields: study

Projects in close proximity to MRT stations do not necessarily command high rental yields, according to a study by real estate agency OrangeTee.

Twenty of 34 projects identified to have high rental yields are not within walking distance - defined as 400 metres or less - of an MRT station.

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"Tenants would be willing to pay a premium for convenient locations," said the report. "However, there may be differences in rental and sale premiums. This would explain why projects that are relatively inaccessible are still able to command high rental yields."

A majority (56 per cent) of identified projects with high rental yields - of 4 per cent or more - are in the Outside Central Region (OCR), also known as the suburbs.

Meanwhile, projects in the Core Central Region (CCR) and Rest of Central Region (RCR) - or prime central areas and areas in the city fringe - make up 12 per cent and 32 per cent respectively of the projects identified to have high rental yields.

The report notes that rental yields for suburban projects may be higher as prices, a main determinant of rental yield, are lower in the suburbs compared to the central region.

Six of the 34 identified projects are located in the Queenstown planning area, which enjoys "good rental demand due to its ideal location attributes".

A short drive from Orchard Road and the Central Business District (CBD), the planning area is home to One North - Singapore's main research and development (R&D) and high technology cluster - and the National University of Singapore.

Its proximity to major job centres and education clusters has also contributed to the healthy rental demand in the area, said the report.

Of the projects identified, 56 per cent are more than 10 years old, while 29 per cent are between five and 10 years of age. Fifteen per cent of the identified projects are less than five years old.

Twenty-nine of the 34 projects are 99-year leasehold developments.

Leasehold properties are considered to be the most attractive when comparing rental yields as "tenants are generally not concerned about the tenure of the property". A 99-year leasehold also has a lower relative price per square foot upon purchase compared to freehold property.

"Ultimately, rental yield is still just one part of the equation with regard to total investment return," said the report. "While investing in real estate, one should also look at the capital growth potential. 

Looking at rental yields is one way of filtering out mispricing in the market, and may sometimes reveal undervalued properties."

Source: The Business Times, May 27, 2015

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