A STUDY ON THE INITIAL YIELDS OF LEASEHOLD PROPERTIES IN THE PRIME DISTRICTS

Abstract

Currently, initial yield figures are commonly used in research or investment reports, but little or no efforts have been made to empirically estimate the yield. Correlation analyses between the initial yield and both locational and market variables provide useful information for the evaluation of investment properties and for estimation of initial yields. This study focuses on the ex-post analyses of the initial yield of leasehold private residential properties in the prime districts from 1995 to 2003. Initial yields reflect market movements over time and they can be directly derived from the rental and capital value evidence at a certain point in time. This yield measure contains expectations of total return and rental growth and the influence of all relevant market factors in the yield can also be determined. In the estimate of the initial yield, the expected rental and capital value are used. However, there is no precise technique as to how the qualitative factors driving the initial yield can be computed. The yields of leasehold properties in prime districts are analyzed with respect to the changes in the macro and micro variables that will have significant effects on the property market yields. In the multi-variate regression analysis, it is found that the yield is decreases with the proximity to school, amenities and time. All macro-factors are positively related to the yield. Proximity to MRT is the only micro-variable that is positively related to the initial yield.