Private rental market may be held up by en bloc sellers, lower supply

The outlook for the private residential leasing market looks promising in 2019, with rent and occupancy rates likely to improve as supply eases and demand continues to be supported by displaced owners.

According to data from the Urban Redevelopment Authority (URA), a total of 10,119 private residential units are slated for completion in 2019, higher than the 7,898 units that could be completed this year.

However, the tally for 2019 is still lower than the ten-year average annual supply of 12,950 units, noted Huttons Asia head of research Lee Sze Teck.

JLL senior director (research & consultancy) Ong Teck Hui said: “2019 would likely be a landlords’ market given the relatively low supply of units to be completed as well as the expected withdrawal of stock arising from the redevelopment of en bloc sites.”

Mr Ong went on to highlight that the number of units expected to be completed next year is also lower than the 16,500 and 20,800 units completed in 2017 and 2016 respectively, adding: “Consequently, rents are likely to continue enjoying an upside in 2019, with the newer properties having an advantage in attracting tenants and securing better rentals.”

In the first three quarters of this year, the URA private residential property rental index has edged up 1.6 per cent after turning around in Q1 2018, although rents are still nearly 12 per cent below their peak in Q3 2013, analysts said.

And while a potentially weaker global economy next year could result in softening demand from expatriates, this should be offset by increasing demand from both citizens and permanent residents (PRs), including displaced owners and tenants from en-bloc sales projects, a Savills Research report said.

According to the report, the number of non-residents in Singapore clocked 1.64 million as at June this year, dipping 0.1 per cent year on year.

Savills projects that rents will continue to firm up in the coming few quarters, edging up 1-3 per cent next year.

Similarly, CBRE’s head of research for Singapore and South-east Asia Desmond Sim does not expect demand from expatriates to grow, but he reckons there could be an improvement in occupancy rate going forward due to displaced occupiers from the collective sales that have taken place. In Q3 2018, the occupancy rate stood at 93.2 per cent.

Pointing out that the Singapore rental market is primarily an expat-driven one, Mr Sim said: “We don’t see any opening of the floodgates in terms of expatriates coming in. Even with those coming in, their accommodation packages have changed. (They are) no longer on full expatriate packages, which see expatriates more cost sensitive when it comes to accommodation.”

Huttons Asia expects rents to pick up by 2 per cent for 2018 as a whole, and projects the upward trajectory to continue next year, supported by economic growth.

Mr Lee said: “If market demand maintains at the 10-year historical average of 11,400 units, occupancy rate will continue to improve and rents might edge up another 3-5 per cent in 2019.”

Aside from expatriates and en bloc sellers, demand could also come from singles, millennials, as well as co-living operators in Singapore looking to grow their footprint.

Analysts say private residential projects that could be completed in 2019 include 1,390-unit High Park Residences at Fernvale Road, 26-unit The Enclave.Holland at Holland Road, 1,165-unit Kingsford Waterbay @ Upper Serangoon, 736-unit Queens Peak at Dundee Road, 20-unit 2 Draycott Park as well as 663-unit Principal Garden at Prince Charles Crescent.

Lee Nai Jia, senior director & head of research for Knight Frank, also expects a more positive outlook next year, with vacancy rates continuing to decline while new completions are absorbed progressively.

“The slower pace of growth in supply allows demand from the foreign workforce to catch up. The uncertain market may also encourage some buyers to enter the rental market, especially if they adopt a wait-and-see approach,” he said.

Meanwhile, OrangeTee & Tie’s head of research Christine Sun estimates that rents could have increased by 0.5-1 per cent for 2018, and, barring any major external shocks, rise another 1-2 per cent next year.

OrangeTee & Tie expects the total non-landed rental volume for this year to hit 80,000-81,000 units, surpassing the 76,290 units seen last year.

Tricia Song, head of research (Singapore) at Colliers International, projects occupancy will continue to rise, with rents potentially recovering by a further one per cent in Q4 2018 and 5 per cent for the whole of 2019, barring any external shocks.

Demand will come from expatriates, Singaporeans and PRs.

Anecdotally, the various property measures – namely, the additional buyer’s stamp duty (ABSD) hike, lower loan-to-value limits, rising interest rates and tight total debt servicing ratio (TDSR) restrictions – have also given rise to more Singaporeans and PRs renting instead of buying, she noted.

This helps to offset slower expatriate growth, in line with the tightening of immigration policy since 2011.

Drilling down by region, rents in the core central region (CCR) could pick up faster than the rest of central region (RCR) and outside central region (OCR), Huttons forecasts.

“There has been very low volume of launches in the CCR for the past few years. Coupled with the high number of successful en bloc deals in the CCR – almost 40 sites or 1,800 units since 2016 – it means that growth of new residential units in the CCR will be very low in 2019,” said Huttons’ Lee Sze Teck.

Certain projects could set benchmark rents, reckons Ms Song, singling out Principal Garden in the RCR. In addition, the 920-unit North Park Residences in the OCR is the first major residential-retail project next to an MRT in northern Singapore, she went on to highlight.

JLL’s Mr Ong expects that the reduced completed supply in CCR, RCR and OCR in 2019 and 2020 could bolster rents in all three areas.

In particular, properties in popular locations in the prime districts and city fringe, as well as those close to MRT stations and amenities, should have an edge in landing tenants and better rentals.

However, from 2021 onwards, supply will rebound as the completed supply from active land sales between 2016 and 1H18 starts to be injected into the market, he highlighted.

According to URA data, 3,472 private residential units could be completed in 2020 but this will jump to 12,263 units in 2021 and 16,467 units in 2022.

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