More home sellers renting out their units first, amid declining prices

With the residential property market remaining sluggish, analysts have said more homeowners are choosing to rent out their homes first, hoping to fetch a better selling price when the market recovers.

However, this is putting downward pressure on rentals. Industry watchers said tenants are now signing shorter leases, expecting rentals to dip.

Prices of private homes have been on the downward trend since the third quarter of 2013, as property cooling measures kick in and loan curbs weigh on demand. Along with that, the number of resale transactions has also dropped.

The Urban Redevelopment Authority’s (URA) data showed that 4,860 private homes were sold in the secondary market in 2014, down from 6,671 in 2013, and sharply lower than the 13,214 in 2012.

Property watchers said the drop in resale volume suggests that potential sellers are holding back and putting out their units for rent instead.

Mr Steven Tan, managing director of OrangeTee said: “Many sellers have the intention to sell but they couldn’t get the prices they want, so they decided to rent out first so they could buy time and sell the property when the market recovers.”

Already, the rental market is seeing more activity. According to URA, the number of rental transactions stood at 56,417 last year – an increase from the 50,417 cases in 2013, and 48,785 in 2012.

Looking ahead, analysts said they expect more potential sellers to look to the rental market for respite as prices continue to decline. But rising interest rates may pressure some owners to sell.

Said Mr Eugene Lim, key executive officer at ERA Realty: “There is a minority who are probably over-leveraged – they have taken too many loans. So especially those who have problems renting out units, they can’t fill the space; on the contrary, interest rates are increasing which means their instalments are increasing – they are under pressure.

“So probably as the year goes on, we may see more of these sellers unloading their units in the market to cut losses. But these form the minority; currently, in general, the market is not under any tremendous pressure.”

But rents have also been under pressure. Rents of private residential properties fell by 3 per cent in 2014, compared to the almost 1 per cent increase the year before. Tenants are also increasingly looking for shorter leases, expecting rents to dip.

According to ERA Realty, a typical lease period is two years. But in the past year, its agents have handled as many as 30 per cent more one-year leases.

OrangeTee said 53 per cent of its rental cases in the first quarter of this year were for a duration of two years, down slightly from the 57 per cent for all of last year, and 60 per cent for 2013.

Source : Channel NewsAsia – 23 Apr 2015

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