Rental rate to fall 25%: Bank

Barclays Capital says market has peaked, rent to drop 5% this year and more in next 2 years

Have home rentals peaked? With a looming rush of new supply, one bank is predicting that they could fall by as much as 25 per cent by 2010.

That is good news for tenants, but not so good news for landlords, who saw private rentals surge an average of 41 per cent last year.

This bold forecast comes in a report from Barclays Capital. Its author, regional economist Leong Wai Ho, expects rentals to fall by 5 per cent this year, with a more severe price correction beginning from next year.

“The market has certainly peaked because vacancy rates are starting to rise and rents are linked to vacancy rates,” he said.

Current vacancy rates for completed flats are not particularly high, at 6.3 per cent in the first quarter of this year, according to Urban Redevelopment Authority figures.

Mr Leong said: “The vacancy rises are not strong this year, but it will be exceptional next year due to the huge supply hitting the market.”

A surge in reconstruction is taking place across town, following the recent flood of en bloc condominium sales. Some big residential developments around the central business district, including The Sail@Marina Bay, are also nearing completion.

Almost 13,000 new homes could be completed next year, rising to 18,000 the year after. All this, at a time when the global economy is slowing.

On the outlook for rents, other property consultants offered mixed views. Chesterton International’s research head Colin Tan believes that the Barclays forecast of a 5-per-cent correction this year is too “conservative”.

He believes the recent spike in rental demand was a “one-off”. As thousands of home owners cashed in and sold their properties en bloc, there was a surge in instant tenants. Mr Tan believes many of them would have now found accommodation and the en bloc scene has since quietened down.

He added: “Supply will also be greater than usual due to the larger proportion of units owned by investors, as opposed to owner-occupiers, who usually put their properties up for rent.” During the recent boom, many people bought second or third homes as rental properties.

Jones Lang La Salle’s research head Chua Yang Liang is more bullish. He expects rents to hold steady as demand from foreign workers remains strong. In fact, he predicts that rents will grow “in the teens” this year before moderating to about 6 to 8 per cent next year. “The hiring of upper management level staff may have reached stable levels, but foreign banks such as Standard Chartered are hiring more employees at the middle-management levels, who also need housing,” he said.

ERA Singapore’s assistant vice-president Eugene Lim said that his company has seen a higher volume of leasing transactions this year and expects rents to rise by another 3 to 4 per cent this year.

Source : Weekend Today – 17 May 2008

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