Little relief in sight for tenants with residential rents poised to climb unabated

/ EdgeProp Singapore |
Rents of HDB flats increased by about 20% over the first three quarters of 2022. (Picture: Samuel Isaac Chua/The Edge Singapore)
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EDGEPROP (SINGAPORE) - There has been a significant increase in HDB and private residential rents over the last two years. The latest confirmed housing statistics show that the rental volume of public flats increased by 2.8% q-o-q and 4.2% y-o-y in 2Q2022 to 10,979 flats. Similarly, the URA rental index for non-landed properties rose for the seventh consecutive quarter in 2Q2022, increasing 6.7% q-o-q.
Rental data compiled using EdgeProp Singapore’s Market Trends tool shows that over a two-year period from August 2020 to August 2022, average condominium rents increased by about 31%, from about $3.27 psf per month to $4.28 psf pm. Meanwhile, average HDB rents rose by about 20%, from $2.09 psf pm to $2.51 psf pm.
EdgeProp rental comparison HDBs and condos - EDGEPROP SINGAPORE

Dramatic shift in HDB rents

According to Nicholas Mak, head of research & consultancy at ERA Realty Network, HDB rents historically increased by 1.5% to 1.6% each year. “However, this changed quite dramatically last year when the HDB rental rate grew by about 10.6% for the whole of 2021,” he says.
According to Lee Sze Teck, senior director (research) at Huttons Asia, HDB rents have increased by about 20% in the first nine months of this year.
Lee says that the construction delays that affected some Build-To-Order projects and uncompleted condos “have a part to play” in the strong demand for rental housing in recent months.
Lee adds that Singapore’s re-opening to international travellers and the subsequent boost in economic growth and activity have resulted in more expats moving back to the city-state. Together with the construction delays, this helped to spur rental demand in the HDB and private residential markets, he says.
Mak points out that the steady stream of new HDB supply entering the market does not necessarily alleviate rental pressures in the HDB market. “For every HDB flat that is sold to a new buyer, that flat cannot be rented out, according to HDB rules, for the next five years. Thus, we are likely to see a reduction in the stock of HDB flats for rent,” he says. (Find HDB flats for rent or sale with our Singapore HDB directory)
Mak: Despite the steady pipeline of new HDB flats, rental regulations mean that it will not contribute to the rental supply for another five years. (Picture: ERA)
Under HDB regulations, only flat owners who have fulfilled their five-year Minimum Occupation Period (MOP) can rent out their flats.
Thus, the supply of HDB flats for rent has actually declined in recent months, says Mak. He says that in 2H2021, about 21,000 flats were rented out by their owners. However, in 1H2022, this number fell to approximately 19,000 flats, which translates to a roughly 10% decline in the supply of rental HDB flats.
The relatively tight HDB rental market is even encouraging some tenants who cannot afford the prevailing rents to move in with friends and share the rental cost of a flat, says Lee.

Short-lived relief for tenants

A number of new HDB and condo developments is due to be completed by the end of next year. Hopefully, some tenants who are waiting for these new homes will move out of their rental properties, thus releasing more available rental units in the market, says Lee.
Mak concurs, saying that “in the last three years, there has been a gradual growth in the number of HDB flats that reached the end of their five-year MOP. And the numbers reached a peak this year”.
However, this relief might be short-lived as he expects the number of available rental flats to decrease in 2023 and in 2024. “Unfortunately, the [housing supply] numbers do not point to [sustained] relief for some HDB tenants,” he says.

Unexpected pace of recovery in private rents

According to Lee, the rate of Singapore’s economic recovery in 2021 was somewhat unexpected and much of the positive sentiment carried over into 2022. Statistics from the Ministry of Trade and Industry show that for the whole of 2021, the Singapore economy expanded by 7.6%, in contrast to the 4.1% contraction in 2020.
“Businesses need to hire more, and they are bringing in more overseas talent to meet their needs. This has contributed to the increase in rental demand for private residential homes in Singapore,” says Lee.
Lee: Stronger rental demand for large units in the Core Central Region has led some tenants to look for alternative housing in the city-fringe and suburban areas. (Huttons)
Overall, the pace of growth in private residential rents has been an unexpected development this year, says Mak.
“Before the pandemic, private housing rental rates had been growing at a very slow pace of about 1.4 to 1.8% each year,” says Mak. “But from 2021, rents started to grow and accelerate, especially in the first six months of this year. By 2Q2022, rental rates were growing by about 16% y-o-y.” That is 10 times the rate of growth the market had experienced before the pandemic, he adds.
Strong rental growth and tight rental supply in the Core Central Region (CCR) has led to the spillover of tenants into city-fringe and even suburban locations, says Lee. This is creating a knock-on effect as some tenants from city-fringe locations are now scouting for more affordable rental housing in the suburban neighbourhoods, he says.
Looking ahead, Mak says the rental situation in the private market could ease in the coming months. “This year, we expect about 14,000 to 15,000 private housing units to be completed, and next year, that number will increase to about 17,000 units. Some of these units will subsequently be rented out,” he says.
However, he does not expect to see a decline in rental rates due to a tight labour market and persistent leasing demand for private units.

Property cooling measures, again

The latest episode in EdgeProp Singapore’s monthly Real As State video series, released on Sept 30, focuses on the causes behind the recent rental increases in the market. However, the day before the episode was released, the government announced its latest round of property cooling measures at the 11th hour.
This time around, the government’s intervention aims to cushion the effects of rising interest rates and tame house prices.
Two new measures stand out for the public housing and rental market. For property loans granted by private financial institutions, the Monetary Authority of Singapore will raise the medium-term interest rate floor that is used to compute the total debt servicing ratio and mortgage servicing ratio (MSR) by 0.5 percentage points.
Strong rental growth and tight rental supply in the Core Central Region (CCR) has led to the spillover of tenants into city-fringe and even suburban locations, says Lee. (Picture: Samuel Isaac Chua/The Edge Singapore)
Citing a “clear upward momentum in HDB resale prices”, the government imposed a wait-out period of 15 months for private residential property owners (PPOs) and ex-PPOs to buy a non-subsidised HDB resale flat as a temporary measure to moderate demand and ensure that resale flats remain affordable for flat buyers, especially for first-time home buyers.
The newly announced wait-out period does not apply to seniors aged 55 and above (and their spouses) who are moving from their private property to a four-room or smaller resale flat.

Wait-out period

Christine Sun, senior vice-president of research & analytics at OrangeTee & Tie, says that the 15-month wait-out period “may cool the market for a while and slow down the pace of price increase for these bigger flats to a certain extent and give younger couples a better chance of securing these units with lesser competition”.
Tricia Song, head of research, Southeast Asia, CBRE, says: “We believe the 15-month wait-out period may actually help support the rental market for both private and public housing, in particular as more completions are coming through in 2023.”
However, Mak offers a different view: Those buyers not excluded from the wait-out period will have to rent a home for at least 15 months. “This will increase the demand in the residential rental market, leading to even higher rental growth,” he says.
“The current round of cooling measures will have more impact on the public housing market, especially the adjustment of the MSR and the 15-month waiting period,” says Sun. She adds that this is the first time that major cooling measures have been implemented in the public housing market, thus there could be a more significant knee-jerk reaction down the line.

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