Outlook for private residential rental market

(2012-02-29 12:00:53) 下一個
Wednesday, Feb 29, 2012
The Business Times

By Chua Chor Hoon & Li Jinquan

RENTAL growth of private residential properties slowed down significantly to 3.8 per cent in 2011 from 17.9 per cent in 2010, according to the Urban Redevelopment Authority's rental index.

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Much of the 2011 rental growth was in the first half (2.5 per cent) compared with 1.2 per cent in the second half. In particular, rents almost stagnated in Q4 with only a 0.4 per cent quarter-on-quarter (q-o-q) increase.

The second half of 2011 was less optimistic due to the worsening of the eurozone debt crisis with companies reducing expatriate hiring and housing allowances. Rental growth was also hampered by the larger addition to the stock, as around 7,800 units were completed in H2 2011 compared with around 4,600 units in H1.

Government policies also played a part in the rental market.

In 2011, the government implemented a series of measures to regulate the inflow of foreign labour. The qualifying salaries for certain employment pass holders were raised on July 1, 2011 and again on Jan 1, 2012. The increase in qualifying salaries not only reduces demand for foreign labour but may also be passed on to the employees in terms of smaller housing allowances.

Non-landed rents in suburban areas posted the best performance in 2011. According to Urban Redevelopment Authority (URA) statistics, the rental index of non-landed properties for Outside Central Region (OCR) recorded the best performance compared with that in the Core Central Region (CCR) and the Rest of Central Region (RCR) in 2011.

The rental index for OCR rose 4.7 per cent while that for CCR and RCR increased by 2.6 and 3.5 per cent respectively in 2011. The tighter housing allowances and hefty increase in rents from 2010 led to stronger demand for apartments in the suburban areas which command a smaller rent quantum compared with those in the city areas.

In addition, the proportion of non-landed completions in the OCR was also smaller compared to the CCR and RCR. Around 41 per cent of the non-landed completions in 2011 were located in the CCR, followed by 32 per cent in the RCR and only 27 per cent in OCR.

Due to weaker demand coupled with higher supply-side pressure, rental growth of non-landed private homes in CCR has started to moderate; the rental index rose only 0.1 per cent q-o-q in Q4. In comparison, the non-landed rental index for RCR and OCR increased by 1.2 per cent and 0.5 per cent respectively.

In particular, older properties in the CCR faced competition from the newly completed properties as more units are available for rent and tenants become more selective, preferring newer projects with more up-to-date finishes and facilities.

Rents to face demand and supply headwinds

Rental demand in 2012 is expected to be weaker due to lower foreign hiring as a result of a projected slower business climate and tighter government policies.

This may be mitigated somewhat for a temporary period by the imposition of the 10 per cent additional buyer's stamp duty (ABSD) on foreign purchase as some foreigners who had intended to buy may turn to renting a flat for accommodation. However, they may be tempted back to the purchase market if prices fall.

Rental growth is also expected to face supply-side headwinds from the large number of completions.

URA's islandwide private non-landed residential vacancy rate has crept up from 5.5 per cent in Q1 2011 to 6.8 per cent in Q4 2011, as the increase in supply of 11,710 units in 2011 was not matched by the increase in demand of 7,126 units.

According to URA's statistics as of Q4 2011, 12,639 private non-landed residential units are expected to be completed by 2012, around 22 per cent higher than the three-year historical annual average completion of 10,375 units.


URA's estimates tend to fluctuate quarter to quarter and may differ from actual completions as developers adjust their completion dates. The annual average private non-landed home completions in 2012-2014 is even higher at around 15,500 units, suggesting a high level of completions in 2012 even if developers were to delay or bring forward completion dates. The three-year historical annual demand is lower at around 8,270 units.

Rents in the OCR, which have performed best in 2011, are also expected to face supply-side pressure as there are a number of projects to be completed in the suburban areas in 2012. Demand will however be supported by the growing number of tenants with smaller housing budgets.

With a weaker rental market anticipated in 2012, rents for newer properties in close proximity to transportation nodes will hold up better than the older ones.

Chua Chor Hoon is head of Asia Pacific Research and Li Jinquan is research analyst at DTZ Non-landed rents in suburban areas posted the best performance in 2011.

This article was first published in The Business Times.

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