Rental market ‘gone bananas’: Full impact of cooling measures yet to be seen, say analysts and agents

SINGAPORE – After combing through close to 100 rental unit listings, sales director Lim Wee King was confident he would be able to rent a house by increasing his monthly budget from $3,000 to $3,800.

But he was outbid by another potential tenant who, on top of matching the $3,800 rent, also offered to install brand new air-conditioning units in the rental unit at his own expense.

“I just walked away from the deal because I’m not going to match them. I’m not going to do such crazy things just to secure the unit,” said Mr Lim, 47.

Property agents The Straits Times spoke to said such offers, which were unheard of in the past, have surfaced amid the current rental market boom in order to entice landlords.

They expect the competition to get fiercer in the coming months as more private property downgraders rent while serving out the 15-month wait-out period before they can buy a Housing Board resale flat – adding to rental demand which is outstripping supply.

Under the latest round of cooling measures, which kicked in on Sept 30, private home owners must wait 15 months after the sale of their current private property before they can buy an HDB resale flat without housing grants. Previously, they were allowed to buy a resale flat on the open market if they sold their private property within six months of the HDB flat purchase.

The maximum amount that home buyers can take for HDB loans was also tightened.

The curbs took aim at the exuberant HDB resale market which has seen prices increase by around 8 per cent in the first nine months of the year, even in the face of rising interest rates.

Rents for both HDB flats and condos climbed to an all-time high in the third quarter of 2022. In the first nine months of the year, HDB rents surged 20.7 per cent while condo rents rose 20.8 per cent.

Mr Lim, who sold his four-bedroom condominium unit four days before the measures kicked in, eventually managed to rent a five-room HDB unit in Sengkang for $4,000 a month, but not without hassle.

He had to put down a one-month deposit on the rental unit that he had viewed only virtually – a risk he was willing to take to ward off competing offers and secure an interim home for his family of five and a dog as he waits for 15 months before buying an HDB resale flat.

Huttons Asia property agent Joy Wong, also known as Property Mom, said affected downgraders like Mr Lim, who is her client, had no choice but to enter the red-hot rental market at “an inopportune time” because of the cooling measures. “Even before the measures, rental demand was already very high. Now it’ll only get worse because those who have sold their private property to buy an HDB resale flat will most likely have to rent if they cannot – or don’t want to – buy another private property now,” said Ms Wong.

In the last two years, pandemic-related delays in the construction sector, coupled with the influx of foreign talent, international students and returning Singaporeans as Singapore gradually opened up, have led to the increased demand for rental units.

ERA Realty property agent Anne Ho, who has been brokering rental deals for the past six years, said she was caught offguard by how quickly rents have risen in the last two years as the rental market has “gone bananas”.

For instance, she said rent for a four-room HDB flat in Bendemeer hovered around $2,500 to $2,800 for many years pre-Covid-19, but can easily cross the $4,000 mark in today’s market.

“In the past, it could take me one to two months to close a rental deal and tenants usually want to view the unit before they commit. Now I can close deals just with a TikTok video. Units now go fast, typically in one to two weeks, sometimes even a day,” said Ms Ho.

Private property downgraders affected by the cooling measures have had no choice but to enter the red-hot rental market. PHOTO: ISTOCKPHOTO

Ms Zann Toh, a property agent with SRI, foresees a surge in demand for bigger HDB flats in the coming months as more affected downgraders jump into the rental market. She recently rented out a five-room HDB flat in Queenstown for $4,550 a month, up from the previous $2,900 monthly rent.

A three-room HDB flat in Clementi that she used to rent out for around $1,800 a month can fetch close to $3,500 in today’s market.

“You may think that $3,500 a month for a three-room flat is expensive but the landlords can look at the profiles of 10 potential tenants and pick who they prefer to rent to. It’s a landlord’s market now,” said Ms Toh, who specialises in rental units and has around 90 ongoing leases.

While the rental market – which moves faster with a quicker turnover rate – may feel the immediate squeeze resulting from the cooling measures, property analysts said the full impact and effectiveness may only be seen in the months to come.

The cooling measures will not have an immediate effect because the property market is “relatively inefficient” and information takes time to gradually sink into the market, said Professor Sing Tien Foo, director of the Institute of Real Estate and Urban Studies at the National University of Singapore.

As a result, HDB resale prices in the next quarter or two may still grow, despite the measures, because the supply and demand imbalance has not caught up, said Prof Sing. The bigger question is whether the cooling measures will slow down the HDB resale price growth in the long run.

“If buyers start to buy more prudently and sellers start moderating their asking prices due to the smaller pool of potential buyers, the price growth momentum could slow down. This slowing down could then be a sign of price corrections associated with the cooling measures,” said Prof Sing.

The Government imposed the cooling measures after the HDB resale price index grew around 27 per cent in the last 10 quarters, which Prof Sing said is “not sustainable” in the short timeframe.

The number of million-dollar HDB resale flats has also risen steadily in 2022, with the most expensive five-room HDB flat changing hands at $1.418 million in July.

It is set to be a record year for million-dollar HDB flat transactions, with 312 units sold to date, smashing the tally of 259 such deals for the whole of 2021, with just over two months to spare.

The eye-watering prices and rapid price increases have stoked concerns about public housing affordability and raised the spectre of a property bubble where home prices run ahead of fundamentals.

Associate professor of economics Walter Theseira of the Singapore University of Social Sciences said that while some may argue that there is already a “substantial risk” of a property bubble now, it can be confirmed only in hindsight after a market crash or a correction.

“The recent housing price growth is unsustainable given it has far outpaced wage growth over the last few years and also given that financing is likely to become substantially more expensive for quite some time due to interest rate hikes,” he said. “But whether there will be a crash – which is evidence of a bubble – or whether prices will just stabilise and stagnate is hard to predict.”

While there are some people who may be sceptical about the effectiveness of the cooling measures to lower home prices, Prof Theseira said it is useful to consider whether the price growth might have been much stronger without any cooling measures and to consider the change the policy might have made.

“Cooling measures try to prevent the housing market from reaching a dangerous asset price level given the obvious dangers to the economy from high inflation, high interest rates, and generally poor global macroeconomic conditions,” he said. “It’s better to stabilise prices now than to let them appreciate rapidly and possibly risk a destabilising crash in the next few years.”

Apart from cooling measures, NUS’ Prof Sing said that another way is to ramp up Build-To-Order (BTO) flat supply, as it is “the most immediate and effective way” to help young couples secure their first home and draw demand away from the HDB resale market.

HDB has said it will offer up to 23,000 BTO flats in 2023 and launch up to 100,000 flats in total from 2021 to 2025 if needed.

Prof Theseira said the issue is that while most prospective HDB buyers would prefer to buy a BTO flat for the 99-year lease and subsidised pricing, some opt for an HDB resale flat because they do not meet the BTO eligibility criteria, fail to secure a ballot number or think the waiting time is too long.

“Nonetheless, any demand you can attract away from resales through BTOs will reduce pressure on the resale market,” he said.

“Source:[Rental market ‘gone bananas’: Full impact of cooling measures yet to be seen, say analysts and agents] © Singapore Press Holdings Limited. Permission required for reproduction”

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