Resilient housing rentals but for how long?

 ⋅ August 31, 2012 ⋅

The private housing rental market may have achieved a record last month when the combined value of the 4,717 leasing contracts signed hit S$24.5 million, but early signs of “ghost towns” are emerging with the number of vacant apartments surging in the past 18 months.

The previous dollar value record of S$24.4 million was achieved exactly a year ago – in July 2011. However, in terms of the number of leasing contracts transacted, last year’s number was higher with 4,752 leasing deals closed for that month.

This has been the consistent story for the private housing rental market in the past few quarters. Many had predicted that the home leasing market would be trending southwards by this year. But while the climb in housing rentals has slowed significantly over the past few quarters, it has steadfastly refused to buckle.

Official figures for the second quarter this year showed overall rentals continuing to inch up, rising by 0.3 per cent from the previous quarter.

Some landlords and tenants are baffled. Wasn’t it reported widely in the media that the supply of properties had been rising over the past one to two years before it is expected to peak some time in 2013 and 2014? Such a scenario had led some property experts to envisage a “perfect storm” hitting the private housing market.

Stock-wise, the net increase in the number of completed private properties last year grew by 25 per cent from 2010. This year, the net increase in stock is projected to grow by at least another 10 per cent.

While there are areas where rentals have declined, there are many locations where rentals have continued to rise. An important factor contributing to the resilience of housing rentals is the growth in the number of renter households even as supply rises.

The number of leasing contracts grew by 8.4 per cent last year, far exceeding the 4.4 per cent growth in 2010. For the first seven months of this year, the number of leasing contracts is already 5.3 per cent higher than the corresponding period last year. Value-wise, it is 8.3 per cent higher, which means that overall rents are rising.

In the past, expatriate households have been the dominant force in determining the state of the leasing market.

The latest population statistics show that their numbers are coming down. The authorities have become less liberal in granting employment passes and permanent residence. At best, expat numbers will be flat unless new statistics show otherwise.

If expats are not behind the increase in the number of renters, we can conclude that there are more local renters these days.

They could be beneficiaries of en bloc sales who choose to rent before buying a new place or have bought something under construction.

They could be speculators who have sold their existing units at record prices, and are parking their profits elsewhere while waiting for the market to correct. In the meantime, they rent.

They could be upgraders who see little point in buying new units because of the high prices. Instead, they do extensive renovations to their existing units and rent while this is happening.

Or there could have been a dramatic rise in single-person households – due to lifestyle changes – who are choosing to rent before buying.

Although the growth in the number of renter households have largely kept pace with the number of units completed in percentage terms, the absolute quantum of vacant homes is growing.

The vacancy rates for high-rise apartments alone have been hovering near 6 per cent for the past three quarters. However, the absolute number of vacant apartments has risen from 10,504 units at the start of last year to 13,838 units by end-June, a rise of 31.7 per cent over the period of one-and-a-half years.

How is this consistent with the high housing rentals in the market today?

This is because interest rates have remained very low and owners are able to hold their units vacant for a far longer period. With little pressure on the rate front, they have largely managed to present a unified front towards tenants with respect to rentals.

Still, looking at the number of vacant homes at the end of June and assuming that an average condominium development has 300 units, we can look at the issue in another way: We have at least 46 condo projects that are completely empty in Singapore today – signs of “ghost towns”?

By Colin Tan – Head of Research and Consultancy at Chesterton Suntec International.

Source : Today – 31 Aug 2012