How do condo sizes impact rental yields?

By EdgeProp Singapore / EdgeProp | November 9, 2018 11:40 AM SGT
Size matters, especially when it comes to rental yields.
In exploring the correlation between condo sizes and rental yields, we discovered that smaller unit sizes delivered the highest gross rental yields this year.
Current gross rental yields are calculated by taking the annual rental income of the development and dividing it by recent resale prices of the corresponding project. It is important to note that gross rental yields do not include other costs such as maintenance fees and vacancy costs.
To reduce the effects of outliers which may skew findings, we only considered non-landed private residential properties that recorded at least five sales and five rental transactions in the first 11 months of 2018 for our analysis. Below are our findings:
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Average gross rental yields between different condo unit sizes in 2018
Source: EdgeProp.sg, URA
Smaller units delivered higher yields
Based on our findings, units ranging between 500 - 599 sq ft, the typical size of a shoebox unit, delivered the highest yields this year.
As is, Singapore’s rental market is largely driven by foreign demand, given that over 80% of Singaporeans own a HDB flat. Viewed from this perspective, we can deduce that demand for smaller rental units is likely spurred by expatriates who are single, those who do not have children, or those who enjoy partial rental subsidy from their employers, says Alan Cheong, senior director, research & consultancy, Savills Singapore.
“Fo example, a single expat would not mind paying $2,000 per month for a unit as small as 500 sq ft, because he is being subsidised,” he explains.
However, our findings showed that units ranging between 1,000 and 1,299 sq ft - the typical size of a three-bedder unit - within the Central Region delivered slightly higher yields than units ranging between 600 - 699 sq ft, and 700 - 999 sq ft - the typical sizes of one-and-two bedder units respectively.
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Suburb properties commanded higher yields
Our findings also revealed that rental properties located in the Outside Central Region (also commonly referred to as the suburbs) delivered higher gross rental yields compared to those located in the Central Region.
This is likely due to the relatively lower prices of sales transactions for properties located in the suburbs, compared to those located in the Central Region, assuming that all other aspects are equal.
Signs of recovery in the rental market
Overall, gross rental yields for non-landed private homes in Singapore are currently hovering at around 3.2%, the lowest in a decade. Low interest rates, a tightening labour market and an abundance in housing supply are possible reasons for dwindling yields.
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However, there are signs pointing to a possible recovery in the private residential rental market, with the rental index picking up from 1Q2018 to to Q32018 (as shown in the graph below), although whether or not the momentum will sustain throughout the coming quarters still remains to be seen.
Rental index of non-landed residential properties from 1Q2013 to 3Q2018
Source: EdgeProp.sg, URA
Understanding the dynamics of the rental market landscape helps provide insight into connections between demand and supply, where the hot commodities are, and where there could be room for negotiation.
Get more data and analytics on the Singapore property market with our market trend tool.