Friday, July 9, 2010

Residential units post higher rentals

Rates have followed the dizzying rise in private property prices but ‘will stabilise or even correct’

Rental rates for residential units have tracked the dizzying rise in private property prices, with rents for condominiums posting a significant increase of 5.8 per cent over the first five months of this year.

Based on data from the Urban Redevelopment Authority (URA), median rentals of non-landed residential properties in January amount to $30.54 per square metre (psm) but were propelled higher to $32.41 psm in May.

Rentals for units in the central region are even higher at $36.89 psm in May.

The maximum rental per month for non-landed residential properties in the central region amounts to $114.58 psm, while minimum rental amounts to $11.64 psm.

Condominiums in the east and west recorded median rents of $27.68 psm and $27 psm, respectively, for the same period.

Meanwhile, rentals in the north-east region hit $26.39 psm, while north region rentals stand at $24.47 psm.

As for the rest of the country, maximum rentals range from $33.65 psm to $60.87 psm, while minimum rentals range from $10.18 psm to $14.36 psm.

Market watchers said the significant increase in residential rents is due to an improving economy and a robust property market.

Donald Han, managing director of Cushman and Wakefield, attributed the rise to landlords looking to pocket higher returns from the bullish growth by increasing rents.

“Businesses have started to relocate to Singapore and are bringing in a lot of foreign workers, which have increased demand for residential housing, as compared to the first half of last year, when companies were shedding staff,” said Mr Han.

However, Mr Colin Tan, head of research and consultancy at Chesterton Suntec International, said the rental increase is due to a sharp drop in housing supply.

In the fourth quarter of last year, the number of demolitions jumped to 1,441 – more than the 1,400 units available.

Mr Tan attributes this to an increased number of collective sales, which resulted in more units being demolished during that period.

Unable to make up for the drastic loss, the first quarter of this year, only saw 1,407 units available for occupancy.

“The higher number of demolitions is probably a one-off effect. The numbers of demolished units returned to about 400 units-odd in the first quarter of this year,” added Mr Tan.

With a lot fewer units available and the ongoing high demand for residential properties, rentals hence saw a considerable increase.

Barring drastic changes, he expects rentals to stabilise in the coming months.

“Once the effect of the sharp reduction in housing stock wears off, the rise in rentals will stabilise and may even correct in the coming quarters unless demand is ramped up suddenly but that does not seem to be the case,” he said.

Mr Han expects rentals to increase to about 5 per cent to 8 per cent by the end of this year, in line with the bright outlook for Singapore’s growth.

With growing yields, it is also an ideal time for home owners looking to lease out their properties to hedge against inflation and volatile markets.

“Yields have risen slightly to 3 per cent to 3.8 per cent and are likely to go up over 4 per cent at end of the year. With the low interest rate of 1 per cent to 1.2 per cent, this is a good time for residential yields,” said Mr Han.

Source: Today, 9 Jul 2010

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