Rents squeezed by new demand-supply scenarios

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New condo supply hurting rental market

Growing number of units in suburbs gives tenants more bargaining power

Published on Nov 13, 2014 1:25 AM

By Cheryl Ong


FRESH signs have emerged that the rental market is buckling under the weight of a mounting supply of new condos in the suburbs.

Rents of private non-landed homes fell 0.9 per cent last month from September, after tumbling for nine straight months, Singapore Real Estate Exchange (SRX) estimates showed yesterday.

The leasing market has not been this weak since December 2010. The index stood then at 117.3, while last month's rental index stood at 122.5.

Analysts expected the weaker market, as a plethora of new units has given tenants more bargaining power. But they added that the step-up in completed condos so far this year has been concentrated in the suburbs.

Suburban rentals dragged down the private rental market, with a 1.5 per cent dip. Rents of city-fringe units fell by a gentler 1.1 per cent, while those in the prime central districts slipped by 0.7 per cent.

"Declining private rents in the suburbs are expected to have a spillover effect on the Housing Board rental market. As rents in the suburbs become more affordable, some HDB tenants may consider moving to private condominiums," said Mr Wong Xian Yang, research manager at OrangeTee.

"This would sap demand from the HDB market and put downward pressure on rents."

In the nine months to Sept 30, 6,621 condo units sprang up in the suburbs alone, said SLP International research head Nicholas Mak. This exceeded the 6,097 condo units built in the city centre and city-fringe in that period.

The result is price competition between landlords, with HDB tenants drawn to larger condo units which could have rents lowered to $2,500 to $3,000 a month, said Mr Eugene Lim, key executive officer of ERA Realty.

Condo rents are down 5.3 per cent from a year ago, SRX said.

There were also fewer rental deals last month. An estimated 3,208 condo units and apartments were leased out last month, a 1.3 per cent dip from September. However, 11.8 per cent more units were rented last month than the 2,869 units leased out a year ago.

But vacancy rates of condo units are about 7 per cent, said Mr Lim, and this is likely to top 10 per cent in the next two years.

"The situation is likely to get worse, as there are more than 20,000 non-landed units to be completed each year, in 2015 and 2016," he said. "Tenants who are renewing their leases may take the opportunity to move to better-located units."

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Rents squeezed by new demand-supply scenarios

By Kalpana Rashiwala

[email protected]@KalpanaBT

13 Nov


RENTALS for private condos/apartments as well as HDB flats continued to come under pressure in October, latest SRX flash estimates show.

Market watchers blame this on the tightened inflow of foreign talent crimping leasing demand on the one hand and a ramp-up in private home completions. Moreover, HDB upgraders are choosing to put their flats up for rent after they have moved into their new private condos given current weak buying demand for HDB resale flats due to the 30 per cent mortgage service ratio cap.

This scenario is expected to continue in the near future, with more than 20,000 private homes forecast to be completed for each of the next two years - mostly in the suburbs, note industry players. The nearly 18,000 private homes estimated for completion this year reflect a substantial increase from 13,150 units last year and 10,329 units in 2012.

Flash estimates for October 2014 released on Wednesday show that since December last year, SRX's overall rental index for non-landed private homes has eased 3.9 per cent, a bigger drop compared with the 2.5 per cent fall for the whole of last year.

In the suburbs or Outside Central Region (OCR), the rent drop so far this year has been 5.5 per cent, more than double the 2.5 per cent decline last year.

ERA Realty's key executive officer Eugene Lim noted that almost 60 per cent of the 18,000 private homes expected to be completed this year are in surburban areas.

Agreeing, R'ST Research director Ong Kah Seng added: "Expats, especially those from Western countries, have not massively decentralised to rent suburban condos. A typical mass-market project has at least 300 units and is crowded on weekends. These expats prefer city-fringe or smallish developments that offer a quieter environment; so tenant demand for suburban condos tends to be mainly from Asian professionals who are cost savvy and open to even renting rooms in a HDB flat."

Going by SRX's flash estimates, the rent deterioration has been even more pronounced in Core Central Region (CCR), the so-called high end segment; so far this year, the subindex for the region has shrunk 4.8 per cent - contrasting with an increase of 1.3 per cent in 2013.

In the city fringe, or Rest of Central Region (RCR), SRX's October 2014 flash estimate was 2.8 per cent lower than December 2013. Last year the subindex slipped 3.8 per cent.

For HDB rents, SRX's flash estimate for October was 1.7 per cent below last December. Full year 2013, the index declined 2 per cent.

R'ST Research's Mr Ong estimates that HDB rents will contract by up to 4 per cent for the whole of this year and weaken further by as much as 8 per cent in 2015. "Rents of HDB flats will better match tenants' affordability by the end of 2015," he argued.

For private condo and apartment rents, Mr Ong estimates a full-year 2014 drop of around 7 per cent, to be followed by a further decline of up to 10 per cent next year. "The fall will be most pronounced in Core Central Region as companies are cutting back on housing allowances. For Outside Central Region, the drop will be due to increased completions of sububurban condos," he said.

Nicholas Mak, executive director at SLP International, argues that the OCR may face the greatest downward pressure on rents given that this is the segment with the biggest private home completions over the next few years. On the whole, notes Mr Mak, "Without a substantial increase in the population of foreigners boosting leasing demand in both the private and HDB housing markets, rents (in the two segments) are likely to continue to slip gradually in 2015".

ERA's Mr Lim said that competition for tenants among suburban private property owners who are lowering their rents for family-sized units to S$2,500-3,500 a month are drawing tenants away from the HDB rental market.

While he expects this trend to continue given that the bulk of newly completed private homes are in suburban locations, Mr Lim reckons that the "HDB rental market will continue to have firm support from tenants with monthly rental budgets of S$2,500 or lower".

For October itself, the SRX overall non-landed private home rental index dipped 0.9 per cent compared to September, marking the ninth consecutive monthly fall. The October flash estimate reflects a year-on-year contraction of 5.3 per cent.

Month-on-month, the subindices for CCR, RCR and OCR slipped 0.7 per cent, 1.1 per cent and 1.5 per cent respectively.

Leasing deals were entered into for an estimated 3,208 non-landed private homes last month, a slight dip from 3,250 units in September. Year-on-year, the rental volume in October 2014 was up 11.8 per cent.

SRX's rental index for HDB flats shed 0.5 per cent month-on-month in October. Year-on-year, the drop was 2.1 per cent.

Rentals of four-room, five-room and executive flats registered respective month-on-month decreases of 0.8 per cent, 0.2 per cent and 1.4 per cent. On the other hand, three-room flat rentals inched up 0.2 per cent.

SRX estimates rental contracts were inked for 1,559 HDB flats last month, up 0.8 per cent from 1,546 units in September. Year-on-year rental volume in October 2014 was down 2 per cent.