http://www.businesstimes.com.sg/arch...ctors-20140426

Published April 26, 2014

Private housing rental market seen being squeezed by 3 factors

They are record home completions, tighter inflow of expats, stricter property tax regime

By Kalpana Rashiwala

[email protected] @KalpanaBT


THE private rental housing market is set to come under pressure on the back of record private home completions, a tighter inflow of expat tenants into Singapore and a stricter property tax regime.

Latest official statistics show that private residential rents slipped for the second consecutive quarter - easing 0.7 per cent quarter on quarter in Q1 2014. This was a slightly bigger drop than the 0.5 per cent dip in Q4 last year.

"What we have seen so far are relatively modest drops, until we feel the full effects of the new supply completions," said JLL national director Ong Teck Hui.

The vacancy rate for completed private homes (excluding executive condominiums or ECs) increased to 6.6 per cent at end-Q1 2014, from 6.2 per cent at end-Q4 last year.

Based on estimates provided by developers to the Urban Redevelopment Authority (URA), private housing completions are projected to hit 17,138 units this year, including the 4,114 units completed in Q1. This will be higher than the 13,150 units completed last year and 10,329 units in 2012. The pace of completions is projected to accelerate further - to 21,738 units in 2015 and 26,252 units in 2016.

"Due to the step-up in Government Land Sales in the past few years in response to the heated residential segment, the number of units under construction has snowballed to 67,507 in Q1, double that of four years ago.

"The growth in new completions will not be matched by demand from tenants as hiring of foreign executives has been curbed with hardly any growth in employment pass figures," said Mr Ong. He estimates a 4-7 per cent decline in private residential rents this year.

Lee Lay Keng, regional head (SEA) research at DTZ, predicts an up to 5 per cent rental decline this year, with a bigger fall next year.

"The rental drop may be higher in the suburbs, where the bulk of supply completions will be. Moreover, rental units there will also face competition from rental HDB flats. However, high-end properties will not be spared either as higher property tax rates affect this segment more," she said. "From Jan 1, 2014, landlords can no longer claim vacancy refunds on property tax. So if you do not want to pay property taxes on an empty unit, and with heightened competition for tenants, you may be more flexible on rental levels if you're an investor."

Alan Cheong, research head at Savills Singapore, expects rents to ease 2-5 per cent in 2014, but reasons that investors who have bought private homes in the past two years have been subject to lower loan-to-value limits. Hence their mortgage payments may still be manageable despite softening rents. "So these buyers have stronger holding power, reducing the risk that they will be forced to sell their properties."

Another reason he does not expect a major price correction is the "elevated cost of production for developers" - in terms of construction costs and the high land prices they have paid. "In a normal functioning market, that is, short of a crisis, it is unrealistic to expect prices to 'collapse' or decline significantly."

Mr Cheong expects URA's overall private residential property price index to remain flat on a full-year basis. Despite the 1.3 per cent quarter-on-quarter drop in the first quarter, the index may rebound in subsequent quarters, depending on the type of projects that are launched, he added.

Most other property consultants predict a 5-10 per cent full-year price decline. Colliers International director Chia Siew Chuin said high-end homes will take a bigger price hit, to the tune of 10-15 per cent, given the odds stacked up against them - including weaker foreign buying, an anaemic leasing market and supply-side pressure from developers feeling the heat to meet regulatory deadlines to complete developing their projects and selling all the units.

The latest 1.3 per cent Q1 drop in URA's private home price index was steeper than the 0.9 per cent decline in the previous quarter.

Giving a breakdown of non-landed private home prices by region, URA said the sub-index for Core Central Region (CCR) slipped 1.1 per cent in Q1 - half the 2.1 per cent drop in the previous quarter.

Prices in Rest of Central Region (RCR) - which includes places such as Bukit Merah, Bishan and Geylang - eased 3.3 per cent in Q1, against a 0.4 per cent gain previously. In Outside Central Region (OCR) - home of mass-market condos - prices dipped 0.1 per cent in Q1 following a one per cent decline.

For both RCR and CCR, first-quarter prices of uncompleted units fell at a faster clip compared with completed properties. However, uncompleted homes in OCR rose 1.4 per cent, while completed unit prices fell 3.5 per cent.

URA's office price index rose 0.5 per cent in Q1, matching the increase in the previous quarter. Its office rental index appreciated at a stronger pace of 2.4 per cent, compared with the 0.5 per cent rise previously. Net new demand for office space decreased to 64,583 sq ft in Q1 from 322,917 sq ft in Q4, which sent the vacancy rate inching up to 10 per cent from 9.9 per cent.