Property Investment with Immediate Returns
 |
Property investment with immediate rental returns is a preferred option for many investors in today’s environment. The reasons commonly cited are a fixed deposit saving rate at 0.5% per annum or less, a mortgage rate at a historical low of around 1% to 1.5% per annum and an inflation rate at over 3%. As property is a physical asset, it is generally viewed as a lower risk option than other investment products.
What is the current return on investment in a residential property?
Your “Return on Investment (ROI)”in a property (or the Yield) is usually expressed as a percentage of the cost of the investment property. There are also nett and gross yields:
- a nett yield is the return shown as a percentage after costs such as property tax, maintenance fees and other charges
- a gross yield is simply the percentage derived from dividing the income by the cost of the property
You can enjoy immediate returns when you purchase a completed project with tenancy. With careful selection, you can own a property with positive cash flow. An example is Rafflesia at Bishan, developed by Far East Organization. The following is a simple calculation of ROI for a high floor unit, #20-09 at the Rafflesia condo. As shown below, you will get an estimated nett return of 3.17% per annum.
Property Price ( PP )
|
$1,570,000
| |
Cash 10% ( A )
|
$157,000
| |
CPF / Cash 30% ( B )
|
$471,000
| |
Stamp Duty ( SD )
|
$41,700
| |
Rental income p.a ( R )
|
$61,800
| |
Loan installment p.a ( L )
|
$36,204
| |
based on 60% loan, 0.97% interest rate, 30 years
| ||
Maintenance fee p.a ( M )
|
$4,464
| |
Property Tax ( PT )
|
$6,180
| |
Nett cash income p.a ( R - L - M - PT )
|
$14,952
| |
Nett rental yield ( < R - M - PT > / < PP + SD > ) x 100%
|
3.17%
| |
You can also evaluate this investment by looking at the returns on the cash (including CPF) you use for this property. If we assume that you borrow 60% of the purchase price and use 40% cash, your estimated return on cash is 7.64%. Please see calculation below.
Nett cash return yield
| |
( < R - M - PT > / < A + B + SD > ) x 100%
|
7.64%
|
 |
In summary, the benefits of investing in a completed project with rental yield are:
- Immediate cash income
- Good investment return
- Hedge against inflation
- Flexibility to switch to own use when needed
- Tangible asset
Source: PropertyGuru