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Calculate Rental Yield in Singapore: A Quick and Simple Guide

Guest Contributor

Guest Contributor

Last updated 14 August, 2018

Be sure that your property works for you.

This article was originally published in on 30 May 2018.

Rental yield is often cited as the reason why investors are attracted to property. At viewings and previews, however, what the first-timer usually gets told is the gross rental yield they’d get, which doesn’t factor in all the additional payments buying and renting out a property entails. What really matters to buyers is net rental yield, which is the actual return on investment on buying a property for rental income.

See also: Should Your First Property Be an Investment?

Calculating net rental yield is not a straightforward affair. While there are some easy and reliable methods to work out potential rental yield for any given project, it’s also a subject that’s open to debate. (Veteran investors each have their own sophisticated calculating methods.) To simplify matters, here’s the most basic method to calculate net rental yield — something you must understand before you invest in any property in Singapore:

To calculate rental yield, first know your probable rental income.

Say you’re looking to buy a 1-bedroom condo unit at Affinity at Serangoon for $800,000. First, open up the map and check out the rental rates for nearby 1-bedder properties (about $2,000 monthly). Work out your gross rental income (the income before deducting any expenses) over 12 months. So if you expect a total rental income of $2,000 a month, your gross rental income per annum is $24,000.

Now, to be conservative, we suggest you shave 5% off this figure. This is to account for the occasional disruption, such as a weak rental market, or being forced to take on a tenant at a lower rate (it’s better than a vacancy).

So even if the gross rental income is $42,000 per annum, we can be conservative and place the number at around $22,800.

calculate rental yield deductions

Next, deduct property tax, maintenance bill and commission fee.

From your gross rental income, deduct yearly operating costs. The two main costs will be your maintenance, and your property tax (you can calculate your property tax here). However, don’t forget to add expenses such as any agent’s commissions you have to pay (typically one month rental for a one-year contract).

For simplicity’s sake, we will assume that our gross rental income is more or less similar to the official Annual Value of the property. The Annual Value (AV) is the annual rental income your property is expected to generate, as estimated by the Inland Revenue Authority of Singapore (IRAS).

You can check the AV of your owned property for free here (if you don’t own it, there’s a search fee of $2.50).

Let’s assume the AV is $24,000. Using this calculator, we see that the net tax payable is $2,400.

Next, we will assume an annual maintenance bill of $2,400.

Next, we add a commission fee of $2,400 for any property agent engaged (one month’s rent).

Taking the more conservative gross rental income, this gives us a figure of ($22,800 – $2,400 – $2,400 – $2,400) = $15,600. This is the figure before factoring in interest from a property loan.

Factor in the property loan interest, if there is one.

Most of us would use a loan to finance a property purchase. If you don’t need a property loan, then skip ahead. But if you do, you can find a property loan with the lowest interest rate, and you’ll need to factor in its interest rate.

For our property costing $800k, we will assume a loan of $640,000, which is 80% of the property’s price. We will also assume an interest rate of 1.6% per annum, over 25 years. The interest-only payment would amount to $10,420 per year.

Subtract this from our non-loan net rental income of $15,600, and this gives us a final net annual rental income of $5,180.

Next, derive your total cash outlay — and work out your net rental yield.

We’re nearly there. Work out your total cash outlay, which includes the total of your downpayment, stamp duties and other upfront costs.

First, there’s a downpayment of ($800,000 – $640,000) = $160,000.

Next, we’ll assume you’re a Singapore Citizen, and apply the seven per cent Additional Buyers Stamp Duty (ABSD) on top of the existing Buyer’s Stamp Duty, which amounts to $74,600. (You can calculate stamp duty here.)

We’ll add $15,000 for renovation and furnishings, which is a reasonable figure for a 1-bedder condo.

Finally, we’ll add an additional $5,000 for tax on rental income and legal costs such as conveyancing fees etc.

This takes the total cost up to ($160,000 + $74,600 + $15,000 + $5,000) = $254,600.

Now, divide the net annual rental income by the total cash outlay. This would be ($5,180 / $254,600) x 100 = 2.03% — your net rental yield, also known as net return on investment (ROI). This is the percentage you’ll actually earn from renting out your investment property.

The next part is tricky.

There’s something important missing here, and that’s capital appreciation. This method to calculate rental yield doesn’t take into account the fact that, when you resell, your property value could’ve appreciated far above the price you bought it for. As practical and conservative property investor, we omit expected capital appreciation from rental yield calculations. No one can guarantee if capital appreciation will happen, or by what percentage.

Instead, what you should do is to compare your ROI to other investment options. In this example, if another asset with lower risk than property could beat net ROI of 2.03% after factoring in inflation, then seriously consider the other asset.

The caveat here is that stocks are typically more volatile and carries more risks, whereas government bonds, though more stable and hands-off, offer lower returns over time. Then there are real estate investment trusts (REITs), which merits another discussion. (Bear in mind that REITs are subject to the forces of the stock market, don’t include a swimming pool you can dive into any day you want, nor can you decide to live in them.)

So, as long as the per square feet (psf) price of the property you’re eyeing is competitive and you view the project and unit favourably, it might be worth going ahead and buying that property for rental income — ideally as part of a broader investment portfolio.

All said and done, there’s more than one way to calculate net rental yield — this is just one of them. More sophisticated methods require data that won’t be available to the lay person. If you want to explore these, a property agent can help, using data acquired from their firm and research partners.

Some additional important factors to consider:

There are some risks that aren’t addressed in this method to calculate rental yield. Remember that, if the mortgage interest rate rises, your ROI will drop. For example, if the 1.6% interest rate used in our example rises to 1.8%, your ROI will fall from 2.03% to to 1.6%. This is why it’s important to refinance from time to time, to keep costs low. (At the point of writing, interest rates are on a gradual upward trajectory.)

The calculation also doesn’t take into account that your property might devalue, instead of appreciating. The longer you can hold on to your condo though, the less probable this scenario will be, especially for freehold properties.

Finally, your net rental yield could also fall if the rental market weakens or you end up with a lot of vacancies. A sudden glut of new condos in the area might be the cause of the latter. If the issue is specific to location, your solution might be to rent out the property you’re living in (if the net rental yield is higher) and move into the condo that you had initially bought for rental income — a tactical substitution, to borrow football parlance. logo


Discover the best way to find houses, condominiums, apartments and HDBs for sale and rent in Singapore with, Singapore’s Fastest Growing Property Portal. is a property search engine with the overarching goal of building a more transparent and efficient property market. We are working towards that future by empowering people with the tools and information needed to find a place to live in the best way possible.



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