How Much Does A Property’s Age Affect Its Rental Income And Yield?
One of the reasons to buy an older property is supposedly good rental yield. As the theory goes, tenants will still pay around the same rental rate (they don’t care about the remaining lease), while the cost of the property is lower. However, what’s seldom explained is the degree to which a property’s age can affect the rental income.
In this article, we stake out some older developments in Singapore’s private property market, and then looked out at how much lower their rental rates were compared to newer counterparts:
Caveat:
This is in no way equal to a full and in-depth study of the topic. Rather, it’s a quick snapshot of some newer condos, and how the rental rates and yields of older condos nearby compare to them.
We will compare developments of different ages in three categories relevant to rental: luxury properties, more fringe region properties, and properties near MRT stations (which supposedly hold up well despite age).
Age and luxury properties
Luxury properties are an important segment of the rental market, as they work differently from their mass market counterparts. For example, tenants tend to be less price sensitive (as some expatriates stay on their employer’s dime); and tenants are almost entirely foreigners.
We’ll start by looking at two developments, in the Core Central Region (CCR). We’ll compare 3 Orchard by the Park versus Cuscaden Residences, both of which are luxury developments.
3 Orchard By-The-Park (2017)
Last five rental transactions:
| Start of lease | Unit Size (Sq. Ft.) | Bedrooms | Monthly Rent | Est. PSF |
| Dec. 2019 | 1,000 – 1,100 | 2 | $6,500 | $6.20 |
| Nov. 2019 | 1,100 – 1,200 | 2 | $7,000 | $6.10 |
| Oct. 2019 | 1,800 – 1,900 | 3 | $11,172 | $6 |
| Sep. 2019 | 1,100 – 1,200 | 2 | $7,000 | $6.10 |
| Aug. 2019 | 1,100 – 1,200 | 2 | $6,800 | $5.90 |
*We used all recorded transactions, and not just the last five, to determine the average rental rate
Indicative rental range: $5.90 – $6.20 psf
Average rental rate: $6.19 psf
Rental yield of 2 bedroom unit: 2%
Cuscaden Residences (2002)
Last five rental transactions:
| Start of lease | Unit Size (Sq. Ft.*) | Bedrooms | Monthly Rent | Est. PSF |
| Jun. 2020 | 1,400 – 1,500 | 3 | $5,200 | $3.60 |
| Jun. 2020 | 1,400 – 1,500 | 3 | $5,200 | $3.60 |
| Jun. 2020 | 1,200 – 1,300 | 2 | $4,600 | $3.70 |
| Jun. 2020 | 1,400 – 1,500 | 3 | $5,900 | $4.10 |
| May. 2020 | 1,400 – 1,500 | 3 | $5,200 | $3.60 |
*We used all recorded transactions, and not just the last five, to determine the average rental rate
Indicative rental range: $3.59 – $5.04 psf
Average rental rate: $3.96 psf
Rental yield of 2 bedroom unit: 1.96%
Conclusion:
The psf per month difference between the two luxury properties is 56.3 per cent. This shows the effect of a difference of 15 years, between the two properties.
So what about rental yield? We used the average psf from the last 6 months to calculate the price of each 2 bedroom unit to make a comparison. Based on that, a 2 bedroom unit at Cuscaden Residences would be $2.82 million with a rental yield of 1.96% based on past rental figures.
Contrast this with 3 Orchard By-The-Park, where a 2 bedroom unit would cost $3.89 million with a rental yield of 2% – which is very much comparable to the older development.
Age and fringe region developments
Mass market properties are the mainstay of Singapore’s real estate. This is where you find more locals renting as well, such as those who may just be waiting for their home to be built.
For our example, we’ll use two properties in the Clementi area – The Trilinq, and the nearby Regent Park.
The Trilinq (2017)
Last five rental transactions:
| Start of lease | Unit Size (Sq. Ft.) | Bedrooms | Monthly Rent | Est. PSF |
| Jun. 2020 | 700 – 800 | 2 | $2,800 | $3.70 |
| Jun. 2020 | 900 – 1,000 | 3 | $3,000 | $3.20 |
| Jun. 2020 | 700 – 800 | 2 | $2,880 | $3.80 |
| Jun. 2020 | 1,500 – 1,600 | 4 | $3,800 | $2.50 |
| Jun. 2020 | 700 – 800 | 2 | $2,650 | $3.50 |
*We used all recorded transactions, and not just the last five, to determine the average rental rate
Indicative rental range: $2.45 – $4.73 psf
Average rental rate: $3.85 psf
Rental yield of 3 bedroom unit: 2.35%
Regent Park (1997)
Last five rental transactions:
| Start of lease | Unit Size (Sq. Ft.) | Bedrooms | Monthly Rent | Est. PSF |
| Jun. 2020 | 1,100 – 1,200 | 3 | $3,100 | $2.70 |
| Jun. 2020 | 1,100 – 1,200 | 3 | $3,150 | $2.70 |
| Jun. 2020 | 1,100 – 1,200 | 3 | $2,300 | $2.00 |
| Jun. 2020 | 1,100 – 1,200 | 3 | $2,900 | $2.50 |
| Jun. 2020 | 900 – 1,000 | 2 | $2,300 | $2.40 |
*We used all recorded transactions, and not just the last five, to determine the average rental rate
Indicative rental range: $2.00 – $2.95 psf
Average rental rate: $2.65 psf
Rental yield: 3.29%
Conclusion:
Regent Park is 20 years older than The Trilinq. On a psf basis, rental rates are 31.1 per cent lower; so even in fringe region properties, we can see some impact of age on rental income.
With regards to rental yield for the Trilinq, we used the latest transaction for a 3 bedroom unit, since the average psf data was skewed by the recent transaction of the penthouse. In this case, the 3 bedroom transacted for $1.53 million, which churns out a rental yield of 2.35%.
Since the 3 bedroom unit at Regent Park was transacted around a similar time frame, we used the $1.13 million transaction to calculate the rental yield. Based on the latest rental numbers, the rental yield of a 3 bedroom unit at Regent Park is at 3.29%, a rather big difference from its competitor just across the road.
The age of properties near MRT stations
There’s a common belief that, as long as a condo is near an MRT station, tenants will pay top dollar for it even if it’s an older project. The convenience of the MRT station should trump the age factor.
Let’s look at two properties that are especially known for being near MRT stations – Compass Heights and La Fiesta:
La Fiesta (2016)
Last five rental transactions:
| Start of lease | Unit Size (Sq. Ft.) | Bedrooms | Monthly Rent | Est. PSF |
| Jun. 2020 | 400 – 500 | 1 | $1,700 | $3.80 |
| Jun. 2020 | 400 – 500 | 1 | $1,850 | $4.10 |
| Jun. 2020 | 400 – 500 | 1 | $1,800 | $4 |
| Jun. 2020 | 800 – 900 | 3 | $2,700 | $3.20 |
| Jun. 2020 | 500 – 600 | 1 | $2,100 | $3.80 |
*We used all recorded transactions, and not just the last five, to determine the average rental rate
Indicative rental range: $2.04 – $4.44 psf
Average rental rate: $3.27 psf
Rental yield: 2.98%
Compass Heights (2002)
Last five rental transactions:
| Start of lease | Unit Size (Sq. Ft.) | Bedrooms | Monthly Rent | Est. PSF |
| Jun. 2020 | 1,000 – 1,200 | 2 | $2,300 | $2 |
| Jun. 2020 | 1,200 – 1,300 | 3 | $3,000 | $2.40 |
| Jun. 2020 | 800 – 900 | 1 | $2,000 | $2.40 |
| Jun. 2020 | 1,100 – 1,200 | 2 | $2,350 | $2 |
| Jun. 2020 | 1,000 – 1,100 | 2 | $2,400 | $2.30 |
*We used all recorded transactions, and not just the last five, to determine the average rental rate
Indicative rental range: $1.69 – $3.38 psf
Average rental rate: $2.31 psf
Rental yield: 3.43%
Conclusion:
We can see that for the two properties close to the MRT station, the newer La Fiesta has an average rental rate that’s about 41.5 per cent higher. This is for an age difference of just around 14 years.
With regards to rental yield, La Fiesta’s last transaction for a 3 bedroom unit was at $1.088 million. This means based on its last rental transaction, it has a rental yield of 2.98%.
For Compass Heights the last transaction for the 3 bedroom unit was at $1.05 million. This translates to a rental yield of 3.43%.
In the specific case of these two condos, it seems while rental rates for the newer condo was higher, the actual rental yield was higher for the older condo right next to the MRT station.
Most older condos struggle to make it past the $2.40 to $2.70 psf mark
Again, this is not comprehensive enough to apply to every property (few things are universal in real estate); but it will hopefully give you a sense of how much difference your rental income and yield can be.
We probably will have to do a deeper dive to analyse, but from a head to head comparison, it does seem as if older properties do enjoy a higher gross rental yield (besides the luxury comparison).
Besides that…
Buying an older property for investment can be riskier, as rental income could be lower than expected, maintenance costs can be higher than expected, and older properties can be tough to offload.
You also need to take into account certain variables that are not seen here, such as whether the condo maintenance has kept the development in a good state. So if you’re thinking of buying an older unit, drop us a message on Facebook; we can find you some expert help.
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Interesting article. It would be better if the conservancy cost is factored in too. Older estates have lower conservancy fees.
we are considering Regent Park now due to lowest quantum compared to neighbor new condos around. budget is only $1.5M. Le Quest was recommended by our agent, but there is no mrt there now and need to wait till 2028. What is your view?