Bright outlook for rental market

SINGAPORE: The rental market could brighten for landlords this year as home-buyers defer buying units in the wake of the recent cooling measures, said analysts.

They believe the larger pool of tenants might stabilise the rental market or even drive a pick-up of up to 5% in rents over the next 12 months.

These analysts' comments are a contrast to earlier expectations that rents were set to fall as a large supply of completed units come onto the market this year. Analysts had predicted a possible softening of rents this year due to the new private and public homes that will be completed within the next few months.

But some consultants now say that foreigners considering buying might be persuaded to head to the leasing market, after being put off by the recent introduction of the additional buyers' stamp duty of 10%.

“(The measures) effectively increase their (financial) risks tremendously if they buy and ... get reassigned elsewhere or lose their jobs (within the first two years),” said Alan Cheong, head of research at Savills Singapore.

“Leasing has always been seen as a faster and easier decision to make as compared to buying a property because of the lower commitment level and the smaller amount of money required upfront,” said OrangeTee managing director Steven Tan.

In the third quarter of last year, the Urban Redevelopment Authority (URA) rental index of non-landed homes showed increases compared with that of the previous quarter, although the index rose at a slower pace in the central regions and suburban areas.

While demand from foreigners and expatriates is expected to be the main driver of the residential leasing market next year, the local factor cannot be ignored.

There may be some locals who have sold and want to rent, and wait until they can buy at a cheaper price. There may also be locals who are now unwilling to sell their home given the weaker market.

Cheong suggested that the expected dip in rents was now unlikely, with the effects of the measures partially balancing it out.

URA figures indicate that 9,584 apartments were completed between the third quarters of 2010 and 2011, with rents rising 6% during that period.

“This suggests that rental demand was substantially greater than supply. Thus, barring external shocks or policy changes that affect immigration, rentals should at least be stable in 2012,” he said, noting that the rate of immigration was still strong and might remain so for years to come.

Market watchers added that global economic uncertainty would also have an impact on rents.

Hardest hit would be the high-end sector, said Cheong, with rents possibly experiencing declines of up to 5%.

New arrivals of foreign white-collar workers might have more constrained rental budgets, said other consultants.

“Rental budget cuts will lead tenants to look at cheaper alternatives so projects in mid-prime or well-located city fringe or suburban locations may be in greater demand,” said Ong Teck Hui, head of research and consultancy at Credo Real Estate.

By Singapore ST