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Which type of small condo is the best for rental yield?

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Old 15-01-2018, 12:34 PM   #46
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Is this the SSB you are referring to?
He is referring to 30y bond not SSB. 30y is trading 2.52% today and we are a little over a week to the auction.
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Old 15-01-2018, 12:39 PM   #47
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He is referring to 30y bond not SSB. 30y is trading 2.52% today and we are a little over a week to the auction.
Thanks.. will try to surf for this.
Past few auction/opening are not so good compare to this month?
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Old 15-01-2018, 12:42 PM   #48
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Well, the government will be offering 2.X% (where X is a high digit) on its AAA rated 28 year bond next month (February, 2018). That's one particularly interesting point of comparison since that's the lowest risk long-term yield available on unrestricted funds in this economy. It's the baseline "sanity check."
I would actually give up at least 25bps just so I don't have to deal with agents and tenants. So the real baseline is closer to 2% for me. Of which the 10y is already exceeding. There must be boatloads of people running at 1.2-1.8% yield and still holding on for that elusive capital apprec.
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Old 15-01-2018, 12:45 PM   #49
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hi all, been doing some research on this area.... im quite optimistic on the geylang area... theres some potential i feel.... what do you guys think?

thanks
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Old 15-01-2018, 12:55 PM   #50
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Thanks.. will try to surf for this.
Past few auction/opening are not so good compare to this month?
The last 30y auction was in 2016.
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Old 15-01-2018, 01:05 PM   #51
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30y is trading 2.52% today and we are a little over a week to the auction.
The 2016 edition of the 30 year bond will reopen at auction in late February, 2018 (a little over a month from now), with about 28 years to run to maturity. That's the specific upcoming bond I'm referring to. It's issue code NA16100H.

Assuming market interest rates don't vary too much between now and then, NA16100H should end up yielding 2.X% for noncompetitive bids where X is a high digit.

For those of you interested in something shorter, there's a 10 year bond coming up for auction in April, 2018, issue code NX18100A.

These are your baseline comparison yields in this economy, if nothing else.
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Old 15-01-2018, 01:10 PM   #52
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Hi all, my friend is looking to purchase a small freehold condo for investment. May I know if anyone here familiar with small condo rental? Which type is the best for rental yield and easiest to rent out?

Studio, 1 room or 1+1?

Price range around 500-650 K?
Any recommendation?

Thanks!

Why not consider D12 like St Michael or Balestier?
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Old 15-01-2018, 01:15 PM   #53
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Not enough money.

Why not consider D12 like St Michael or Balestier?
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Old 15-01-2018, 01:17 PM   #54
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What is a realistic average yield? Based on that, just aim a little higher?

Realistically 2.5% to 2.8% based on current prices.
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Old 15-01-2018, 02:50 PM   #55
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Not enough money.


Quite a number of advert leh.


https://www.propertyguru.com.sg/sing...ure%5B%5D=L999
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Old 15-01-2018, 03:25 PM   #56
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Why do investors purchase real estate for investment at such abysmal yields?
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Old 15-01-2018, 04:05 PM   #57
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Why do investors purchase real estate for investment at such abysmal yields?
That's a terrific question. I have some ideas, and most of them assume rationality (broadly defined):

1. Because they themselves plan to live in the home, and so the property is not purely or even mainly for investment. Or, relatedly, they want a place where their kids or grandkids will likely live, so they reserve that particular nearby location. It's similar to the reason some people buy fine art, and even loan it out to museums (if it's museum worthy). Mostly, they love the painting or sculpture, and when there's an opportunity, they want it in their lives. It's beautiful, and they enjoy it -- its proximity gives them pleasure. If the art happens to appreciate a bit, that's just a bonus. There's absolutely nothing wrong with buying something you enjoy and enjoying it, that gives you pleasure, as long as you don't hurt anybody else and can afford it.

2. Because they saw their parents and/or grandparents get rich that way (as Singapore transformed from a developing to developed economy, a one-time historic event), and many really did get rich that way. So they simply do what their parents and grandparents did, hoping for similar capital appreciation.

And that's not irrational, at least not in that way. Studying hard, going to a good (or great) university, brushing your teeth at least twice a day.... There are many lessons our parents and grandparents teach us that are terrific lessons. And some lessons that aren't so terrific. As an easy example, don't smoke even if your mother does/did.

3. In the case of HDB units, because the government still offers heavy subsidies. Those subsidies help make the financial case still work after a careful analysis.

4. Because, to a degree, they are diversifying their investment portfolios. I don't think anybody is arguing for zero real estate exposure. I certainly believe in at least reasonable portfolio diversification as a core element of prudent investment strategy. But this reason doesn't seem to apply very often in Singapore. I haven't encountered too many Singaporean investors sitting at 0% real estate exposure contemplating whether to raise that exposure to 8% for diversification reasons.

5. Because they don't think there are better savings and investment alternatives. And you know what? The other available choices weren't so great a generation ago in Singapore. (A unit trust with a 5% sales fee and 3% annual management fee? Yes, that was/is terrible.) Although that certainly doesn't seem to make rational sense nowadays when government bond yields (!) rival real estate yields, and that's if you value your personal time at zero.

6. Related to #5, because the elusive dream itself, and working toward that dream, is fun. Acting like a real estate tycoon gives pleasure, and that pleasure has value. So even if the financial yield is low, playing the game is fun. Casino gambling is like that for many people -- it's fun! -- albeit with negative average yields. So if you can do something you love, even if it doesn't actually compensate well, you might do it. It's also the same reason some people enter the priesthood or monastery -- there are some parallels.

Last edited by BBCWatcher; 15-01-2018 at 04:07 PM..
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Old 15-01-2018, 04:18 PM   #58
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Why do investors purchase real estate for investment at such abysmal yields?
No good reason but I purchase some anyway.
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Old 15-01-2018, 04:48 PM   #59
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I've got another couple reasons:

7. Because, traditionally, real estate was one of the few ways people could make leveraged bets. In the classic formula, the buyer (or maybe the buyer's grandmother) makes a 20% down payment, and a mortgage lender provides the other 80%. Of course, the bank must get paid first, and thus the buyer (not the bank) assumes all of the capital depreciation risk. However, it's a common way to make a leveraged bet.

8. Relatedly, because many people find it just plain difficult to save and invest, but mortgage payments and (on average) increasing real estate equity effectively enforce some savings discipline. In the not too distant past, that enforcement was literally at gunpoint, with loan shark syndicates. Nowadays the enforcement is usually more civil but still feared.

Loosely speaking a mortgage is analogous to bariatric surgery. It's a tool to maintain some discipline, to avoid overconsumption.
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Old 15-01-2018, 06:51 PM   #60
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The so-called "abysmal" yield is not really "abysmal" at all!
There are many people who just don't understand the power of real estate, which is why look at the property magnates in Singapore, the like of Ng Teng Fong, Quek Leng Beng, etc - they all got rich from properties!

I will tell you a secret that BBCWatcher and many, either they are ignorant or they simply won't tell you!

Say, you bought a property at $1M.
You financed it with 80% loan paying 1.5% p.a. interest rate, while only paying $200k cash upfront (this is your investment capital).

Now, you rented out your property at $2500 pm, or $2500x12 / $1M = 3% p.a. rental yield.
So, this is the rental yield that BBCWatcher told you about, the "abysmal yield", they are low, as compared to CPF SA 4% interest that BBCWatcher like to shout out loud to you about!

Wait a minute, did you stop to think, hei, you only come out with $200,000, not $1M, why you calculate your rental yield by dividing by $1M?
So, the smart one will calculate their rental yield this way:
Rental yield
= (rental income - interest expenses) / (your capital invested)
= ($2500x12 - $800,000x0.015) / $200,000
= 9.0% p.a.!

So, the truth is, your rental yield for your $1M property renting out at $2500 p.m. is not 3% p.a. that BBCWatcher wanted you to believe, but really it is 9.0% p.a.!
Now, you compare this 9.0% p.a. to 4.0% paid by SA, are they big difference?
BBCWatcher may now tell you 9.0-4.0 = 5.0% p.a. not that great and not worth it considering the risk involved! Really?

Ok, let me give you another illustration again:
You start with $200,000 and you put this money into CPF SA earning 4% p.a. 30 years later, your pot of money becomes
= $200,000 x ((1+0.04) to power of 30)
= $200,000 x 3.243397
= 648,679

Let say instead of 4% p.a., now you get 9% p.a. (say, through your property investment), your pot of money starting with $200,000 now becomes
= $200,000 x ((1+0.09) to power of 30)
= $200,000 x 13.267678
= $2,653,535 = $2.653 Millions!

So, the difference between $2.653M and $648k = $2.005 Millions! Wow!
So it determines whether you become a Millionaire with just $200k or a pauper!
This above is considering rental income only and still does not include the capital gain you will get as a result of inflation and money printing!

So, there you are, this is the secret of how Ng Teng Fong and Quek Leng Beng become BILLIONAIRES!
Do you want to be a Millionaire (and on to become Multi-millionaire and even Billionaire)?
Or you want to be a pauper (after factoring in the escalating costs of living in Singapore) listening to BBCWatcher?

It is all up to you!


Why do investors purchase real estate for investment at such abysmal yields?
That's a terrific question. I have some ideas, and most of them assume rationality (broadly defined):

1. Because they themselves plan to live in the home, and so the property is not purely or even mainly for investment. Or, relatedly, they want a place where their kids or grandkids will likely live, so they reserve that particular nearby location. It's similar to the reason some people buy fine art, and even loan it out to museums (if it's museum worthy). Mostly, they love the painting or sculpture, and when there's an opportunity, they want it in their lives. It's beautiful, and they enjoy it -- its proximity gives them pleasure. If the art happens to appreciate a bit, that's just a bonus. There's absolutely nothing wrong with buying something you enjoy and enjoying it, that gives you pleasure, as long as you don't hurt anybody else and can afford it.

2. Because they saw their parents and/or grandparents get rich that way (as Singapore transformed from a developing to developed economy, a one-time historic event), and many really did get rich that way. So they simply do what their parents and grandparents did, hoping for similar capital appreciation.

And that's not irrational, at least not in that way. Studying hard, going to a good (or great) university, brushing your teeth at least twice a day.... There are many lessons our parents and grandparents teach us that are terrific lessons. And some lessons that aren't so terrific. As an easy example, don't smoke even if your mother does/did.

3. In the case of HDB units, because the government still offers heavy subsidies. Those subsidies help make the financial case still work after a careful analysis.

4. Because, to a degree, they are diversifying their investment portfolios. I don't think anybody is arguing for zero real estate exposure. I certainly believe in at least reasonable portfolio diversification as a core element of prudent investment strategy. But this reason doesn't seem to apply very often in Singapore. I haven't encountered too many Singaporean investors sitting at 0% real estate exposure contemplating whether to raise that exposure to 8% for diversification reasons.

5. Because they don't think there are better savings and investment alternatives. And you know what? The other available choices weren't so great a generation ago in Singapore. (A unit trust with a 5% sales fee and 3% annual management fee? Yes, that was/is terrible.) Although that certainly doesn't seem to make rational sense nowadays when government bond yields (!) rival real estate yields, and that's if you value your personal time at zero.

6. Related to #5, because the elusive dream itself, and working toward that dream, is fun. Acting like a real estate tycoon gives pleasure, and that pleasure has value. So even if the financial yield is low, playing the game is fun. Casino gambling is like that for many people -- it's fun! -- albeit with negative average yields. So if you can do something you love, even if it doesn't actually compensate well, you might do it. It's also the same reason some people enter the priesthood or monastery -- there are some parallels.
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