Landlords immediately realise they cope with two different markets, when it comes to renting out properties in Singapore. You can draw a line between RCR/OCR and CCR, and see how looks to operate apart from the other.
Rental return is dependent on the cost of the property. The formula is (yearly rental income / price of property) x 100. Thus say the yearly rental income is $30,000 (minus maintenance, taxes, etc.), and the overall price of property (including stamp duties and renovation) is $800,000.
This implies than to be that the higher priced the property is, the lower rental yields. It requires an astronomically high rent to get an adequate return since CCR condos tend to reach around $2 million. A $2 million condo would need to be rented out for around $5,000 a month after care costs, property taxes, paying the broker’s fee, etc. only to reach three percent.
For this reason, most CCR condos have a rental return of only between 2.5 to 3.5 percent. RCR condos have yields that range from 2.6 percent to 3.6 percent, whereas OCR condos can reach the elusive four percent mark.
It all comes down to cost. OCR condominiums come with lower price tags, to compensate for the lower availability. But at the same time, Singapore is not a spread city like Perth or Los Angeles – even far flung places like Punggol are at most an hour from town. This makes renters patient of even non- central properties, and landlords can get a great income from their low cost OCR units.
But the CCR is more immune to oversupply
2016 has been a demanding year for the rental marketplace, with vacancy rates. This partially due to a tightening of foreign worker quotas, which reduces the variety of future tenants. The important variable nevertheless, is oversupply. We are anticipating over 26,000 new private, non-landed properties to appear in the market this year.
The oversupply has reach all sections of the rental market. But the least was endured by the CCR. Allowing the Urban Redevelopment Authority (URA), rental income in the CCR dropped by 3.8 percent last year. But the RCR and OCR saw rental declines of five to 5.6 percent, much worse that their higher end counterpart.
The motive is the fundamental rule of property: location. Because their location means they remain in demand cCR properties aren’t threatened by the launching of multiple mass market properties. The demand for a condo on Orchard Road would not be declined by the start of even 10 new condos in Sengkang
This makes CCR condominiums trusted ending of the rental market and tried. The units are resistant to steep decrease as well while return expectations are small due to high capital costs.
The theory of shrinking home allowances
There is a common theory (which is tough demonstrate conclusively) that RCR / OCR condos are more resistant to market downturns. Most tenants in private condominiums are expatriates, as the theory goes. Said expats are reliant on housing allowances from their firms, in order to pay or at least subsidise a large part of their rent.
During a market slowdown, firms will scale back expenses. This frequently means reducing expat packages, and a lower housing allowance means some will downgrade (e.g. Move out of the CCR and into a more affordable place). It also means some going back home, all of which put downward pressure on rental prices and fewer expats coming in.
Probably the most remarkable example of this was Q1 2009, and the interval between Q4 2008. When businesses were beginning to inflict severe measures, this was the peak of the Global Financial Crisis. In this little space of time, lease prices fell dramatically.
In that single quarter, rental prices plunged a whopping 10.3 per cent in the CCR. In the RCR and OCR, rental prices fell by around 6.5 to 7.2 percent – not insubstantial, but notably less than their CCR counterparts.
Again, we cannot say this is because of housing allowances that are shrinking, but it does indicate the CCR marketplace requires the initial brunt of economic disasters. With the current macroeconomic scenario though (Brexit, a slow down in China, still regaining petroleum prices), we may have a chance to see this first hand this year.
Finally, CCR properties are are consistent that their RCR / OCR counterparts, like the upcoming new launch at Clementi Ave 1, The Clement Canopy condo by UOL
They may be pricier, but there’s a higher chance they will work as intended, and hold their value. RCR / OCR properties can be something of a risk – while a condominium in Sengkang will be a lot more inexpensive than one in River Valley, you are also taking on a larger likelihood of vacancy, or a lower output if more condominiums appear in the region (the CCR is mainly too packaged to adapt many more new residential developments).
If they have capital and holding power for it for most landlords, the CCR will be the safest bet.