Rental Yield in Singapore: How to Calculate It Properly

Rental yield is the number every property investor quotes, and the number most people calculate wrongly. The headline figure on a listing is almost always the gross yield, which flatters the property. The number that actually matters is the net yield, after the costs that quietly eat into it. This is how to work out rental yield properly in Singapore.

Gross yield, and why it flatters

Gross rental yield is simple: annual rent divided by the purchase price, as a percentage. A $1.5m condo rented at $4,500 a month gives $54,000 a year, a gross yield of 3.6 percent. It is easy to quote and easy to compare, which is exactly why it is the number you are usually shown. The problem is that it pretends all the rent falls into your pocket, and it does not.

The costs that turn gross into net

Net yield subtracts the costs of actually owning and letting the property:

• Property tax. A rented home is taxed at non-owner-occupied rates, which are progressive on the annual value and run from 12 percent up to 36 percent for the highest bands. That is materially higher than owner-occupied rates.
• Maintenance and MCST fees. Monthly maintenance for a condo is a real, recurring cost.
• Insurance and upkeep. Fire insurance, repairs, replacement of fittings and the occasional larger fix.
• Agent commission. Usually paid to secure a tenant and again on renewals.
• Income tax. Net rental income is taxable at your personal income tax rate.
• Vacancy. Few units are tenanted every single day of the year. A realistic figure allows for some weeks empty between tenancies.

Working out net yield

Net yield is annual rent, minus all the costs above, divided by the capital you put in, as a percentage. Take the same $1.5m condo at $54,000 gross rent. Subtract property tax, maintenance, insurance, agent fees and a vacancy allowance, and the amount that actually reaches you can fall to well under 3 percent. The exact figure depends on your annual value, your tax rate and your costs, but the direction is always the same: net is lower than gross, often by a full percentage point or more.

Yield on price versus yield on cash

There is a further refinement. If you bought with a loan, you can also look at the return on the actual cash you put in, rather than on the full price. Leverage can lift the return on your cash when rates are low and rents are firm, and it works against you when rates rise or the unit sits empty. Both views are useful, and neither should be read on its own.

Yield is only half the return

Rental yield measures income. It says nothing about capital appreciation, which for many Singapore owners has historically been the larger part of the total return. A property with a modest net yield but strong long-term appreciation can outperform a higher-yielding one that barely moves in value. Judge an investment on the whole picture, income and capital together, not on a single yield figure.

A considered view

A property that looks like a strong buy at a 3.6 percent gross yield can look quite ordinary at its true net yield, and that is exactly the calculation worth doing before you commit, not after. If you are weighing a purchase, I am happy to run the real net numbers with you, so you are deciding on facts rather than the headline.