Homes in districts 9, 10 and 11 are seeing more rental enquiries now that prime rents have fallen
BUFFETED by so much negative economic data, the residential rental market inevitably succumbed, with rents falling sharply by 8.5 per cent in the first quarter, and another 5.3 per cent in Q2. While the decline may be showing the first signs of easing, the leasing market remains depressed given the lingering concerns about the large number of new homes coming on stream.
Housing supply is perhaps the biggest influence on rentals. New home completions this year are expected to exceed 11,000 units, going by data from the Urban Redevelopment Authority (URA). On the other hand, the average long-term take-up stands at about 7,200 units a year. While this demand-supply imbalance will weigh on rents, the relatively smaller number of completed units expected next year (just over 5,000 units) may provide some reprieve, allowing the market to digest the excesses and rents to stabilise.
Also, the estimated number of completed units in 2011 and 2012 may be lower than stated given that some projects have yet to begin construction. Nevertheless, the supply pipeline is strong enough to keep the rental market in check, with any significant rise in asking rents by landlords likely to be faced with tenant resistance.
However, leasing demand in the past few quarters continued to be robust, underpinned by falling rentals. Leasing volume in July hit a record high of 4,252, about 11 per cent more than the previous record of 3,846 set in August last year.
This comes after a strong Q2 of more than 10,300 leasing transactions, just below the all-time high of 10,900 done in Q3 2008. What is even more encouraging is that the islandwide vacancy rate remained unchanged at 5.9 per cent as of Q2 2009, despite the large number of units completed so far this year (over 6,000 units). This is a testament to the depth of housing demand.
We note that there are more rental inquiries for homes in districts 9, 10 and 11 now that prime rents have fallen to more affordable levels. After a double-digit correction of 12 per cent in Q1, average monthly rents of high-end non-landed residential properties tracked by Savills have since eased to $4.60 per sq ft in Q3 (preliminary estimates) from the previous quarter's $4.70 per sq ft. This is a smaller decline of 2.1 per cent compared to the 2.7 per cent drop in Q2. Still, prime rents are some 22 per cent lower than a year ago.
The expatriate population, the backbone of the rental market, was widely expected to shrink as a result of heavy job losses in the nation's worst recession. The fear of an exodus of expatriates has so far proved unfounded. According to a recent HSBC survey, 91 per cent of expatriates living in Singapore have not considered returning home amid the downturn, higher than the global average of 85 per cent. This is despite reductions in expatriate benefits and the relatively high cost of living here.
One plausible reason may be that Asia is in relatively better economic health than Europe and the US and expatriates in Singapore may not feel compelled to return home.
Furthermore, as lower expatriate remuneration packages are not unique to Singapore, but have been implemented regionally, the city has not lost its competitive edge to its regional peers. In addition, expatriates from the non-financial sectors such as the pharmaceutical, biomedical and petrochemical manufacturing sectors are coming in to support the rental market. These expatriates, however, usually have lower housing budgets than their counterparts in the financial sector.
An effective measure of the size of the expatriate population in Singapore is the enrolment of students in international schools. Demand for private education in top international schools has been reportedly strong despite the economic slump. Most international schools like United World College of South East Asia (UWCSEA), Tanglin Trust School, Singapore American School and Australia International School have reported that they are close to capacity with long waiting lists for student places.
Furthermore, the local job market is showing some signs of stabilisation. The latest available job data showed that unemployment remained unchanged at 3.3 per cent in June, with most of the retrenchments concentrated in the manufacturing sector. Some sectors, which have been shedding jobs in the last two years, are slowly showing signs of a turnaround. For example, the wealth management sector is back in hiring mode, albeit not on the large scale seen in 2006/2007. Foreign private banks are reported to be seeking up to 900 experienced private bankers after laying off some 300 staff previously.
The rental decline is likely to ease, going by recent leasing data. With stability back in the job market and robust leasing demand, we expect the rental market to stabilise in the near- to mid-term.
The writer is director, residential leasing, Savills Singapore
Source: Business Times, 24 Sep 2009