RISK AND RETURN OF CONDOMINIUMS IN SINGAPORE

Abstract

In the recent years, increasing affluence among Singaporeans has led to a substantial accumulation of wealth by individuals which, in turn, has translated into higher aspirations for better life. As such, there has been a considerable change of mindset among Singaporeans in that residential property is no longer viewed purely as a basic necessity but also as an investment good. The growing number of Singaporeans buying a second or even a third property is indicative of this trend. The objectives of this research are to investigate the risk and returns characteristics of the leasehold condominiums in the central region of Singapore and the relationship between the tenure and the returns. The repeat sales method is adopted to compute the returns and risk. Standard deviation and coefficient of variation are used to measure the risk involved. A correlation analysis is performed to examine the relationship between the tenure and the rates of return. The study shows a down trend of the rates of return over the sample period. The results contradict the conventional idea that high risk must be compensated by high returns. In addition, the correlation results also show longer leases might not result in higher returns. Intuitively, since leasehold properties are depreciating asset, returns should decrease as the remaining tenure decreases. However, this is not the case for leasehold properties in Singapore.