Sayonara crazy home rentals

May 26, 2023

Leslie Yee

IN RECENT times, many foreigners have been complaining loudly about high home rentals here. Some have moved homes because the rental rate for lease renewal is simply unaffordable.

In a survey of prime residential rents across 10 major cities, Singapore pushed New York off the top spot for the strongest growth in residential rents in the last quarter of 2022.

Renting of public and private homes are largely left to negotiations between landlords and tenants, with little external interference.

Nonetheless, high home rentals can have negative effects. For example, Singapore could become less attractive to some businesses. Also, higher rents sting locals who resort to renting in the interim while right sizing their homeownership needs.

I explore the pain caused by higher home rentals in this week’s The Level Ground and wonder if growing a build-to-rent private housing segment merits consideration.

However, the light in the tunnel may be emerging for home renters. While the rental market remains healthy, agents are reporting fewer viewings, and listings are taking a longer time to secure tenants.

Might residential landlords need to lower expectations even more quickly amid the troubles that have emerged among banks in the United States and Europe? Over the weekend, a deal was struck by UBS Group to rescue Credit Suisse Group.

I have some affinity for both Swiss banks. I worked for UBS before and ever interviewed for a position with Credit Suisse.

Still, life carries on for Singapore real estate, seemingly unaffected by global banking travails.

Ho Bee Land announced a sale of two freehold industrial properties in Singapore for S$115 million, notching up a gain on disposal of S$47.1 million before deducting selling expenses.

Meanwhile, Wing Tai Holdings said its subsidiary would buy freehold Holland Tower in District 10 for S$76.3 million, translating to a land rate of S$1,746 per square foot per plot ratio. Wing Tai plans to redevelop the property into a housing development for sale.

The deal affirms that residential en bloc sales can still succeed in spite of higher marginal rates of Buyer’s Stamp Duty and interest rates. For Wing Tai, the deal marks a return to familiar territory as the group has prior experience buildings homes in District 10 with completed developments such as The Nexus, The Serenade @ Holland and The Tessarina.

One may wonder though, if residential development here is a business worth pursuing. My colleague Kalpana Rashiwala opined that it might be a good thing that Ho Bee Land has not clinched a residential development site in Singapore for over a decade.

Perhaps, there is relative strength in home prices in the prime districts, given the narrowing in pricing between the prime districts and other parts of Singapore. In February, new private home sales fell year-on-year but rose month-on-month. The bulk of February’s transactions were from the prime Core Central Region.

A segment that has seen some pick up in sales momentum is landed homes in Sentosa Cove. Ten bungalows were sold for S$207.5 million in the second half of 2022.

Might home buying sentiment at upcoming new home launches be affected by jitters in the global banking system? Maybe, potential home buyers will hold back and adopt a wait-and-see attitude.

Some cracks that have emerged in the banking system stem from a rapid rise in interest rates. Rising interest rates have also affected unit prices and financial performance of Singapore-listed real estate investment trusts (Reits).

Investors may need to pay particularly close attention to the gearing ratios of Singapore Reits noted my colleague Jude Chan. The aggregate leverage levels of more than half of the actively traded Reits had risen as of end-2022 versus the last reported data.

The manager of Lippo Malls Indonesia Retail Trust said it would not pay its distribution, originally scheduled on Mar 27, to holders of its S$140 million perpetual securities issued in September 2016.

Nonetheless, there is still an appetite for fund-raising exercises by Reits. Capitaland Integrated Commercial Trust said its wholly-owned subsidiary issued HK$755 million (S$130 million) worth of fixed-rate notes to institutional or sophisticated investors. The notes will mature on Mar 15, 2033, and will bear interest at a rate of 4.85 per cent per annum, payable annually in arrear.

Also, a deal may be brewing for Korean asset manager Mirae Asset Global Investments to buy Manulife US Real Estate Management, as well as part of a stake in Manulife US Reit.

I am watching nervously to see if financial regulators in various jurisdictions can restore clam to financial markets that are on edge over the health of the banking system.

Perhaps, economic and stock market weakness leading to wealth erosion may start taking a toll on demand for physical property. Conversely, heightened uncertainties in many areas may drive some people to seek refuge in safe haven hard assets such as physical property in Singapore.