Before delving into the potential slowdown of the rental market, it is essential to examine the factors that have contributed to its current state. Over the past year, several significant developments have shaped the rental market landscape.
Firstly, a series of cooling measures were implemented, including an increase in property tax for non-owner-occupier properties and the introduction of a 15-month cooling period for owners transitioning from private residential to HDB. These measures aimed to stabilize the market but had unintended consequences on rental prices.
Furthermore, the return of foreign students and workers had an impact on rental demand, creating additional pressure in the market. In addition, delays in the completion of both private and public housing projects further constrained the supply of available rental units.Lastly, rising interest rates added to the upward pressure on rental prices. These combined factors resulted in a significant surge in overall rental prices in 2022, with an average increase of a remarkable 29.7%.
By analyzing these factors, we can gain a deeper understanding of how the rental market has reached its current position and anticipate potential trends in the future.
Rental Index of private residential properties
The graph indicates a noticeable deceleration in rental demand, while the supply of rental properties is gradually increasing. Specifically, the rate of price increase for non-landed property rentals has moderated to 6.2%, down from the previous quarter’s 7.5% growth. Rental growth has continued to slow and is anticipated to further decelerate in the latter half of the year. This trend can be primarily attributed to two key factors: a disparity in expectations between landlords and tenants, and an upsurge in supply and alternative options.
Demand-Supply Disparity:
Due to escalating mortgage payments resulting from interest rate hikes and limited availability of rentable properties in the current market, landlords are motivated to set even higher rental prices to cover their financial obligations. Consequently, there exists a discrepancy between the asking prices and the expectations of tenants. Those unwilling to meet the asking prices are being priced out and opting for alternatives, particularly in suburban areas.
Increase in Supply:
Pipeline supply of private residential units and ECs by expected year of completion
According to data provided by the Urban Redevelopment Authority (URA), a total of 19,006 private residential units are projected to be completed in 2023. This influx of new properties will alleviate the robust demand in the market and provide tenants with a wider range of alternatives. The ongoing interplay between supply and demand will serve to temper rental growth rather than induce a decline.
Implications for Buyers:
For prospective buyers seeking to invest in residential properties, it is noteworthy that rental prices are currently at their peak. Consequently, this may present a favorable window to enter the market, contingent upon conducting thorough due diligence and prudently assessing affordability factors.
According to the recent annual rankings published by the Economist Intelligence Unit (EIU), Singapore has retained its position as the world’s leading business environment for the 15th consecutive year. Renowned as a global financial hub that attracts a vast pool of talent and foreign investors, Singapore’s rental market is expected to remain robust in the years ahead.
Ensuring the right choice of project and unit is pivotal for achieving healthy rentability and pricing. It is important to note that not all units within a desirable project will yield the same outcomes in terms of rentability and rental rates. Our team of experienced consultants is available to provide further guidance on selecting a suitable unit.
For landlords, the current period presents an opportunity to make the most of the prevailing favorable conditions. The recent adjustments to cooling measures, particularly the increase in Additional Buyer’s Stamp Duty (ABSD) from 30% to 60%, are expected to redirect foreign buyers towards the rental market. This spillover effect underscores the potential for continued rental demand.
Source:
https://www.channelnewsasia.com/singapore/rents-go-sideways-tenants-landlords-price-3393176
https://www.edgeprop.sg/property-news/will-rental-market-continue-favour-landlords
https://www.bloomberg.com/professional/blog/singapore-2023-rental-growth-could-moderate-as-new-homes-double/
