Private home rental market may face slowdown in 2014, say analysts

The private home rental market is expected to face headwinds in the year ahead, given the large supply of new homes and slower demand due to tighter foreign worker policies.

Analysts say rentals, as measured by the Urban Redevelopment Authority’s (URA) Private Residential Rental Index, may plateau and even fall in 2014 – potentially the first drop in four years.

The URA’s Private Residential Rental Index grew 1.35 per cent over the first three quarters of this year and full-year growth is projected by OrangeTee to come in at 1.45 per cent this year, which is a slowdown from the 2.1 per cent increase seen in 2012.

Property experts say stronger competition could push rental rates down by up to five per cent for 2014. And apartments that are bigger or in better locations will be favoured by tenants.

“In the next few years as tenants will be facing a lot more choices in their rental options, some will choose to rent either nearer to the city centre or nearer to MRT stations. As a result, projects that are not that well located will probably suffer in terms of rental returns,” said Nicholas Mak, executive director of research and consultancy at SLP International.

“Many tenants, given the same amount of rental, would prefer to rent an apartment that is bigger than a shoebox apartment. As a result, demand for shoebox apartments will drop. So, the ones that will lose out will be apartments that are in not so desirable locations, as well as some shoebox apartments.” estimates that some 16,000 private homes will be completed in 2013, while the number of new homes completed in 2014 is expected to increase by some 20 per cent.

But the strong supply may have to compete for weaker demand from a smaller pool of tenants as a result of stricter foreign labour policies.

With more units entering the market, analysts expect the volume of leasing transactions to remain high – at around 40,000 – in 2014.

“Tenants typically prefer newer apartments. So what they do is they will probably terminate their leases and sign with a new landlord,” said Christine Li, head of research and consultancy at OrangeTee.

“There is also a trend that a lot of the new employees are being put on contract basis, as a result they may sign a shorter lease which is typically less than a year. So we are going to continue to see high volume, maybe in the range of 10,000 – 11,000 per quarter, and they would be more willing to pay a slightly higher rent.”

However, occupancy rates are expected to continue fall.

The vacancy rate stood at 6.1 per cent as of September 2013, up from 5.1 per cent in the first quarter, and SLP consultants expect it to increase to as high as 8.0 per cent next year.

Source : Channel NewsAsia – 30 Dec 2013

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