OPINION: Residential rent growth to slow, marginal decline expected

By Elizabeth Choong
/ EdgeProp Singapore |
More than 17,000 condominium units will be completed this year, which will ease the pressure on the residential rental market. (Picture: Samuel Isaac Chua/EdgeProp Singapore)
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Residential rents grew despite headwinds

The volume of rental transactions hit a record high of 88,820 transactions in 2021 before easing to 81,375 transactions last year. So far, 11,895 transactions have been recorded for this year.
The continued strong demand has given a boost to rents. The average monthly rent for condominiums in Singapore was $3.33 psf in 2021 before surging to $4.03 psf last year. The current average residential rent is $4.84 psf per month, a growth of 27% since 2013.
This year’s most popular condominium among tenants is Jadescape, with 147 rental transactions at an average rent of $6.78 psf per month. Parc Esta ($7.32 psf per month) and D’Leedon ($5.87 psf per month) took the second and third positions with 138 and 126 rental transactions, respectively.
A similar trend was seen for condominiums across the three regions, with condominiums in the Core Central Region (CCR) having the highest current rent of $3.32 psf per month and the strongest growth of 28% since 2013.
As expected, D’Leedon is the most popular condominium among tenants in CCR. The other two condominiums in CCR with more than 100 rental transactions this year are The Sail @ Marina Bay ($7.34 psf per month) and Marina One Residences ($7.42 psf per month) in District 1.
The average monthly rents for condominiums in the Rest of Central Region (RCR) and Outside Central Region (OCR) are $2.76 psf and $2.30 psf, respectively. Since 2013, rents for condominiums in RCR have grown 16%, while their counterparts in OCR have grown 14%.

Improving vacancy rates

The vacancy rate for condominiums in Singapore was 5.6% last year, slightly below the pre-pandemic vacancy rate of 5.7% in 2019. Construction delays during the pandemic and the gradual return of foreign workers post-pandemic could have contributed to the lower vacancy rates for the city-state.
Among the three regions, OCR has the lowest vacancy rate of 3.6% last year, which is well below the islandwide vacancy rate of 5.6%. It is also below the vacancy rate of 4.7% for the region in 2019. Last year, CCR had the second-lowest vacancy rate of 6.9%, and RCR brought up the rear with a vacancy rate of 7.9%.

Continued demand from foreign workers

A contributing factor to the resilience of the residential rental market is the continued strong demand from foreign workers. Contrary to expectations, the foreign workforce did not leave Singapore in droves during the pandemic.
According to data from the Ministry of Manpower (MOM), the total foreign workforce (excluding migrant domestic workers) numbered 1.166 million at the end of 2019 before declining to 984,100 at the end of 2020 and 954,100 at the end of 2021.
However, foreign workers are returning to Singapore. At the end of last year, there were 1.156 million foreign workers in Singapore; a difference of only 9,900 workers compared to 2019.
Based on the qualifying salary criteria for the different types of work passes, foreign workers with S Pass and Employment Pass (EP) are most likely to rent a condominium unit. The qualifying monthly salary for a S Pass and an EP starts at $3,000 and $5,000, respectively.
Data from MOM indicates that the number of S Pass and EP holders declined in 2020 and 2021 but recovered to almost pre-pandemic levels last year. There were 177,900 S Pass holders last year, a decline of 11.1% from 200,000 holders in 2019. EP holders numbered 187,300 last year, a dip of 3.3% compared to the 193,700 holders in 2019.
Expatriates are returning to Singapore with the gradual removal of travel curbs post-pandemic. Their arrival is expected to increase demand for rental homes and hence give residential rents a boost.

Unexpected demand from young local professionals

The high homeownership rate in Singapore translates to limited demand for rental homes from the local population. However, the residential rental market was given an unexpected boost from demand by locals during the pandemic.
Young local professionals tend to live in the family home until marriage. However, flexible work arrangements became the norm during the pandemic, so they needed a more conducive environment to work from home. These single professionals had to rent because they were too young to purchase an HDB flat on their own, and they did not have a sufficient budget to buy a condominium unit. Demand from this group of renters has persisted because more companies have adopted flexible work arrangements post-pandemic.
The number of single-person households rose from 208,000 in 2019 to 217,300 last year, which contributed to the average resident household size shrinking from 3.2 persons in 2019 to 3.1 persons last year.

The 15-month wait period give a boost to demand for interim rental homes

Another group of locals contributing to demand for rental homes are previous owners of private residential property. Among the cooling measures introduced in September last year, a 15-month wait period is imposed on property owners who sold their private residential property and plan to buy a non-subsidised resale HDB flat. (Find HDB flats for rent or sale with our Singapore HDB directory)
Many such owners were caught unprepared when the measure was first announced because implementation was immediate. Hence, they have to rent an interim home to wait out the 15 months. The measure applies to all private property owners except those aged 55 years and above who sold their private residential property to purchase a four-room or smaller HDB resale flat.

Construction delays push some locals to rental market

The COVID-19 pandemic caused disruptions to global supply chains, resulting in delays in the supply of construction materials. Travel restrictions also prevented foreign workers from entering Singapore, leading to a manpower shortage in the construction industry.
As a result, the expected completion date of many developments was pushed back, causing many locals to turn to the rental market to fulfil their interim housing needs while they wait for their new homes to be completed.
Only 3,433 and 6,388 condominium units were completed in 2020 and 2021, respectively. The number of completions improved to 9,526 condominium units last year, but it is still well below the five-year average of 14,572 condominium units completed between 2015 and 2019.
According to data from URA, 17,427 condominium units are expected to be completed this year, followed by another 11,215 units next year. The 455-unit Riviere along Jiak Kim Street received TOP in January while the 2,203-unit Treasure at Tampines is expected to be completed later this year.
As such, some local owners will be able to stop renting and move into their new homes. Landlords can expect weaker demand from this group of local tenants, which could result in some downward pressure on residential rents.

Landlords should make hay while the sun still shines

The Ministry of Trade and Industry (MTI) has forecasted that Singapore’s GDP will grow 0.5% to 2.5% this year, down from a growth of 3.6% and 8.9% in 2022 and 2021, respectively. MTI has just announced that the advanced estimate for GDP growth in 1Q2023 is 0.1%, a much weaker growth compared to the growth of 2.1% in the first quarter of last year.
MTI has also forecasted that the core inflation rate will be 3.5% to 4.5% this year. The core inflation rate was 4.1% last year, up from 0.9% in 2021. On the flip side, the unemployment rate improved from 3.5% in 2021 to 2.9% last year.
Singapore is also facing headwinds from a weaker global economy. According to the International Monetary Fund (IMF), global GDP growth is projected to fall from 3.4% last year to 2.8% this year due to higher interest rates, a vulnerable banking sector, and rising commodity prices resulting from the Ukraine-Russia conflict.
Massive layoffs by tech companies such as Amazon, Google, Meta, Twitter and Microsoft, as well as the recent collapses of Silicon Valley Bank and Credit Suisse, have increased job uncertainty. As such, tenants are starting to resist large rental increments. Landlords will also face more competition for tenants as more condominiums obtain temporary occupation permit (TOP) over the next few years.

Peeking into the crystal ball

We expect the pace of growth for residential rents to slow down significantly this year. A marginal decline might even be seen towards the end of this year. The increase in the number of condominiums receiving TOP this year will put downward pressure on rents (refer to chart 6). Moreover, demand from local tenants is expected to decline when they move from their interim rental home to their newly completed condominium unit. Additionally, the supply of rental homes is expected to increase when investors list their newly completed condominium units for rent.
Residential rents might decline towards the end of this year but the dip is expected to be marginal. Many landlords are unable to reduce the rent significantly because of their higher mortgage payments, repair costs, and property tax.
Property tax in Singapore depends on the annual value (AV) of the property. A higher tax rate is applied progressively to properties with a higher AV. Upward adjustments were made to the property tax rates which took effect in January. The rates will be increased again in January next year. Investment properties also have higher tax rates compared to owner-occupied properties.
According to the Inland Revenue Authority of Singapore (IRAS), investors with properties that have an AV of $45,000 paid $4,800 in property tax prior to the changes. However, these investors will have to pay $5,700 this year and $6,600 next year.
However, it is not all doom and gloom for the residential rental market. Residential rents are still supported by continued demand from expatriates and locals.
According to the recent annual rankings by the Economist Intelligence Unit (EIU), Singapore retained its position as the world’s top business environment for the 15th consecutive year. The city-state had perfect scores in policy towards foreign investments, foreign trade, and exchange controls. EIU expects Singapore to retain its top ranking for the next five years.
top 10 geographies - EDGEPROP SINGAPORE
As such, companies are still expected to set up business and invest in Singapore, and expatriates can be expected to continue to seek employment in the city-state. Data from MOM indicates that the number of foreign workers in Singapore is gradually increasing to pre-pandemic levels (refer to Chart 4).
There are still pockets of demand for rental homes from locals. Many young professionals continue to rent post-pandemic because of the adoption of flexible work arrangements by numerous companies. Despite the ramp-up in completions of condominium developments, the backlog caused by the pandemic will take some time to clear, so some locals will still have to rent an interim home while waiting for the completion of their new home.
Additionally, the duration of tenancy agreements in Singapore is usually for two years, and rents are fixed at the same amount for the entire lease duration. As such, the downward pressure on rents may take some time before its impact is fully felt by landlords with existing tenants.

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