Benchmarking your asset return
As the saying goes “No pain, no gain,” likewise for property investments, the riskier the asset, the higher the yield one can expect to receive. In Singapore’s context, the attractiveness of each asset classes can be viewed in the following hierarchy:
The net yields presented above are based on broad level trends in each market and will differ across specific assets from time to time. Nonetheless, it offers us an idea as to how risky these assets are viewed in the local property scene (Lower Risk = Lower Return, vice versa). Across the sectors, these yields have been shaped over time by factors including asset volatility and investor sentiments.
These yields also represent the typical net yield expectations of institutional investors such as REITs and private equity funds, where information on the cap rates being applied for property valuations are publicly available for the former. For reference, I have provided an excerpt below (boxed in red) from the CapitaMall Trust’s quarterly presentation slides.
As seen in the example above, the initial yield/cap rate attached to individual properties vary depending on a combination of factors comprising location (I.e. economic attractiveness and proximity to population catchment and transport nodes) and nature of the development (mixed or single use).
Lastly, it is important to note that these are valuation based yields and it will certainly not represent the dividend you will get when buying into a REIT, which is determined by the REIT’s Distribution per Unit (DPU) and transacted Share Price. Nonetheless, the cap rates applied by the different REIT types (i.e. Starhill Global – Office/Retail, Cambridge Industrial – Industrial etc) will offer investors a benchmark on net income to expect when making a property purchase.
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