Rent trends in 2015: What you need to know

PropertyGuru

26 February 2015 at 1:40 am

Cooling measures and loan restrictions have definitely placed a damper on sentiments in various segments of Singapores property market. Leasing demand for public and private housing is no exception. Here are sometrends that are expected to appear in the rental market in 2015:

1) Record number of private home completions

2) Preference for HDB owners to rent instead of sell

3) Selectivity of expat tenants and PRs in choice of residence

4) Proximity to offices and businesses

Record number of private home completions

Private housing completions will not be showing signs of abating with the projected number of unit completions reaching 17,138 in 2014, higher than the 13,150 units in 2013 and 10,329 units in 2012. This pace is projected to accelerate further to 21,738 units in 2015 and 26,252 units in 2016, most of which will be located in the suburban market.

This phenomenon will result in two consequences; with more new condo units made available, many tenants will relocated from older premises to the new ones, especially so if the latter offers a better location, for example near MRT stations and amenities, or has a more comprehensive range of modern facilities within the property. This will increase the pressure on landlords of older units to reduce rents in order to retain or attract these tenants. This is especially so with regards to upmarket condominiums, where owners are facing difficulties in leasing out their units unless they were willing to slash their asking rental.

At the same time, with the greater variety of properties in the market for tenants to choose from, it will give tenants more bargaining power and it might now take more viewings before a lease could be secured. While growth in leasing demand is still expected, it is not likely to be on par while the strong new supply is coming on stream, ensuring that the softening of residential rental prices will be likely to last.

Preference for HDB owners to rent instead of sell

HDB owners who cannot get a good price for their flats in the open market may find it to be more prudent to rent out their units instead. Demand for rental residences will still be propped up by a particular demographic - new permanent residents (PRs) in lieu of the introduction of new property measures in August 2013 that stipulate a time bar of three years before they can obtain the rights to purchase resale HDB flats. This provides more incentive for homeowners to rent out their flats in order to reap the high rental yields of between 6-8 percent that their flats can garner.

Moreover, subletting transactions could increase further as more private residential homes are completed. HDB upgraders thus may choose to move into the new condos and rent out their existing flats.

There are fears though that the HDB rental market may also come under some pressure as a result of falling private property rentals due to the supply of newly-completed homes. As the rental quantum gap narrows between the two property types, tenants may choose to switch from their current HDB unit to renting a private condo instead. However, such a phenomenon still requires some time before it actually becomes reality as HDB rental rates are still more attractive than private rate. HDBs still do have a strong support base, especially those with a lower than a $3000 budget.

Selectivity of expat tenants in choice of residence

Another reason for the slowdown in prices can be due to most businesses focusing on cost savings resulting in more constrained housing budgets. The strain is particularly acute in the high-end market as the housing allowances of expatriates continue to be trimmed. Tighter housing budgets have resulted in tenants moving to less-expensive locations for example, from prime districts to outer prime or fringe locations, with those on a limited budgets in the range of $2,500 to $4,000 per month are likely to consider the suburban market.

In the mid-range market where rentals typically vary from $4,000 to $7,000 per month, the leases are likely to be signed under the personal names of the tenants rather than their companies. As such, it seems that many expat professionals with families who are based in the CBD are focused on reducing household expenses and deciding it would make better financial sense to live within the suburbs.

Proximity to offices and businesses

Although rental prices may have fallen on the whole, the degree of decline is not uniform throughout the districts in Singapore. In fact, rents in certain areas have managed to remain resilient, owing to strong demand. Popularity of rental properties in these areas can be attributed to the developments around the location itself, such as the presence of the MRT stations and bus interchanges, or simply because of their proximity to places of businesses. Decentralisation of offices from the city centre to the suburbs have encouraged expat nationals, who typically form the bulk of renters, to seek lease properties close to their workplace.

An example is Changi Business Park, located in Changi, comprising a mix of technological businesses, data and software enterprises and knowledge intensive facilities. This has attracted more expats to venture into renting public and private properties in the surrounding districts, namely Bedok, Simei, Tampines and Tanah Merah.

To read more about the property outlook for 2015, download the PropertyGuru Property Outlook Report 2015 eBookhere

Adam Rahman, Senior Content Marketing Executive at PropertyGuru, edited this story. To contact him about this or other stories, emailadam@propertyguru.com.sg