Getting your money's worth from property investment

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.

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.

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