SINGAPORE – The private rental market is finally seeing some moderation. After two years of continual increases, rent prices appear to have stabilised as growth rates stagnated for over six months.
The rental market is experiencing some headwinds from a confluence of factors, such as weaker domestic demand and increased housing supply. This is in stark contrast to a year ago, when strong demand drove up rent prices by almost 30 per cent, the fastest annual growth since 2007.
At the start of 2023, many tenants were reeling from soaring rents as landlords passed on the extra costs from pricier mortgages and higher living expenses. Renters have hit a breaking point after witnessing the huge run-up in rental prices.
Tenant competition for housing units began to ease with more condominium completions in the second half of 2023. Sentiment has since softened, with a drop in inquiries and house viewings from potential tenants.
After a streak of quarterly increases, are rent prices undergoing a correction or is the current slowdown a temporary blip?
There is a sudden reversal in the leasing market as the increasing inventory, a slowing economy and price resistance affected demand. Based on data from the Urban Redevelopment Authority (URA), 56,098 rental contracts (for all residential properties, excluding executive condos or ECs) were registered in the first eight months of 2023, well below the contracts inked during the same periods in 2022 at 61,801 and in 2021 at 66,603.
The prime segment, or core central region (CCR), was hardest hit, with demand slipping the most – by 11.5 per cent – year on year in the first eight months of 2023, followed by depreciation in the suburbs, or outside of central region (OCR), of 10.5 per cent and the city fringes, or rest of central region (RCR), by 5.8 per cent.
During the Covid-19 pandemic, there was a significant number of locals renting apartments owing to construction delays for new housing units and work-from-home demands. Now, tenants who were waiting for the completion of their new HDB or private units are moving into their new homes.
As more local families give up their rental units, the vacancy rate for completed private residential units edged up from 6 per cent in the first quarter to 6.3 per cent in the second quarter of 2023.
The rent-price disparity between tenants and landlords remains wide, leading to fewer deals. Rent prices shattered records and hit fresh highs in the second quarter of 2023. Limited housing supply allowed landlords to demand higher rents since the risk of losing tenants was low.
Consequently, some tenants chose cheaper accommodation in the public housing market, while others moved out of Singapore entirely.
Signs of correction in certain areas
The rental market is showing some early signs of a correction in certain sub-markets.
Overall median rents for condominiums, excluding ECs, were stagnant at $5.16 per sq ft (psf) per month in August 2023 compared with six months earlier, according to URA rental data. Comparatively, median rents rose by 14.2 per cent over the same period a year ago.
The median rents for luxury condominiums in CCR dipped 2.9 per cent to $5.71 psf per month, while median rents for city-fringe condominiums in RCR declined 1.3 per cent to $5.36 psf per month from February to August 2023. Conversely, median rents for suburban condominiums in OCR accelerated by 2.3 per cent to $4.54 psf per month.
Median rents for luxury condominiums likely peaked in April 2023 at $6.11 psf per month as median monthly rents were lower for the next four months. Rents in RCR and OCR may not have reached their peaks. Rent prices may continue their upward trajectory as more condominiums are completed and their owners ask for higher rents.
Tenants get relief from incoming housing supply
Renters may finally get some relief as rental prices have come under pressure from the ramp-up in supply. There are more home choices with a steady stream of new homes entering the private market.
More than 8,000 private residential homes, including ECs, were completed in the first half of this year. Supply had more than doubled compared with the same periods in 2022 (3,501 units) and 2021 (3,550 units).
Public housing stock has also risen, with a growing number of flats reaching their minimum occupation period. Existing stock will continue to build up as local renters gradually exit the market. The increased supply will help ease the fierce competition to secure homes among tenants.
The revelation of a shrinking pool of tenants and intensifying competition has not hit home. Despite a slower market and looming housing supply, many landlords held on to sky-high asking prices. Most are reluctant to lower their asking prices due to rising costs and higher mortgages.
Owing to the mismatch between landlords’ and tenants’ expectations and as the market undergoes a period of adjustment, rental volume may continue to decline. This may coincide with the seasonal year-end slowdown in the final quarter of this year.
The mid- to longer-term rent-price trajectory will depend largely on the performance of the broader economy. Business confidence has already taken a hit from negative news surrounding the Chinese economy and the hawkish US Federal Reserve stance, which signalled another rate hike and tighter monetary policy.
Some firms are less sanguine about their hiring expectations for 2024. A slower economy and a weaker global outlook may put downward pressure on rental prices.
If the market tips in favour of tenants and rent prices moderate further, market activity may pick up next year if more tenants renew or sign new leases offering cheaper rents. Tenants may prefer shorter leases as they anticipate further rent price correction, possibly leading to more transactions.
There are silver linings for landlords. Cooling measures have raised the cost of owning more than one property, causing more HDB upgraders to rent properties before buying a new private home.
Rising resale prices will prompt more landlords to sell up, which may help to reduce the rental stock. Should the global economy perform better than anticipated, we may expect expatriates to return to Singapore, supporting the rental market.
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