Tenants’ market

/ The Edge Property
September 16, 2016 9:59 AM SGT
Briton Christine Robertson and her husband, who is in the financial services sector, used to live in a three-bedroom unit at a high-end condominium in the Newton area two years ago. When they returned to Singapore late last year, they decided to try a different neighbourhood. However, they still wanted to be in prime Districts 9 and 10 and within walking distance of public transport and amenities.
The Robertsons moved into a two-bedroom unit in an apartment block at Mount Sophia. They like the neighbourhood as it is within walking distance of the Dhoby Ghaut MRT interchange station, Plaza Singapura and a myriad of malls in the Somerset and Orchard Road neighbourhood.
Having settled into the new apartment for 10 months now, Robertson feels that increasingly, her neighbours are transient residents and some are even backpackers. “The Airbnb [activities] have ruined the premium residence feel,” she laments. “The place is becoming a bit like a boarding house.”
The phenomenon of short-term rentals and proliferation of Airbnb and the like is something that many new condos in the Core Central Region (CCR) have been wrestling with in recent years. It is especially prevalent in condo projects in which the majority of units are one- and two-bedroom apartments that are owned by investors.
“There are very few owner-occupiers of such units in the prime districts,” says Jacqueline Wong, executive director and head of residential leasing and ad hoc sales at Savills Singapore. “Most of the owners are investors who bought the units to be leased out.”
Cairnhill Nine in prime District 9 is one of the projects being completed by year-end
Cut in housing budgets
Competition for tenants, however, has intensified. Housing budgets for expatriates have also been cut in recent years, with the highest volume of leasing deals in the $4,000-to-$8,000- per-month range, observes Wong. “Expatriates with five-digit monthly housing budgets are now few and far between.”
The government has also tightened the approval of employment passes since January 2013, which has slowed the influx of expatriates in recent years. The qualifying salary for employment pass applicants was raised from $3,000 to $3,300 in January 2014, and will be raised again in January 2017 to $3,600.
The net effect is that demand for housing by newly arrived expatriates has slowed, and the profile of expatriates has also changed since the global financial crisis. “In the past, there were more families,” notes Juliann Teo, head of residential leasing at JLL. “The most sought-after condo units were four-bedders above 2,000 sq ft.”
These days, the expatriates tend to be couples who are here without children. They are either young couples who have yet to start a family or senior executives whose children have grown up, says Teo. Demand has therefore been focused on three-bedroom units of 1,300 to 1,500 sq ft, she adds.
Record number of new home completions
This year has also seen a record number of new housing completions — 21,600 units, according to CBRE Research in a July report. In 2Q2016, a total of 8,466 new homes were completed, the highest number recorded in a quarter. This was three times the number of new completions in 1Q2016, which registered 2,919 units. Another 10,262 homes are scheduled to be completed in 2H2016, with around 5,000 units in the suburbs.
The combination of slowing demand, reduced housing budgets and a spike in new home supply has led to “a most challenging period” for Savills’ Wong in her career of almost 30 years as a specialist in residential leasing.
This sentiment is echoed by JLL’s Teo. “During the global financial crisis in 2008 and economic slowdown in 2002 and SARS in 2003, there was a slowdown in demand due to economic factors, but we didn’t have to deal with a record supply of new homes like what we have today,” she says.
The vacancy rate in 2Q2016 rang in at 8.9% — the highest in 16 years, according to CBRE Research. Unoccupied homes reached a peak of 30,310 units at end-2Q2016, a jump of 21.6% from the 24,919 vacant homes in the previous quarter.
Units are staying vacant for longer. “In the past, we could turn around an apartment within a month,” says Wong. “These days, units stay vacant for at least three months.”
Leases are also getting shorter. Instead of the standard two-year lease, there has been an increase in requests for one-year leases, with extensions of six months, notes JLL’s Teo. “Housing budgets have been reduced in the oil and gas sector,” she adds. “Companies were a lot more generous with their housing budgets when oil prices were at $100 a barrel.”
The slowing economy has led to more repatriation and relocation of staff out of Singapore, according to several property consultants. This has put persistent pressure on rents. Housing rents slid for the 11th consecutive quarter in 2Q2016, and were 9.6% below the peak level in 3Q2013, according to CBRE Research.
Landed homes bear the brunt
Housing stock in the central region reached 173,137 units in 2Q2016, which represents 51.1% of total housing stock, says CBRE Research. The number of vacant units in the central region rose to 14,381 units from 13,578 in 1Q2016, and reflected a vacancy rate of 8.3% (see table).
The housing segment that has been suffering the brunt of falling rents is the landed homes, particularly the Good Class Bungalows at the top end. In the past, a GCB with a built-up area of 12,000 sq ft, eight bedrooms, a lift across four levels from basement to attic, cascading waterfall and swimming pool could fetch rents of $40,000 to $50,000 a month.
“Over the past year, I haven’t seen any housing budgets north of $40,000,” says Savills’ Wong. “Even $35,000 is very rare. These days, the higher end of the bracket is in the $18,000-to-$20,000 range.”
C-suite executives of MNCs have also not been spared. “Housing budgets have been cut across the board,” says Jason Tan, executive director of boutique luxury marketer JTResi. “Over the past two years, we have seen housing budgets of $18,000 to $20,000 a month reduced to $12,000 to $13,000.”
At $18,000 to $20,000, one could still rent a detached house in the prime districts, although not a GCB. However, with a budget of $12,000 to $13,000, lessees are likely to be shoehorned into a four-bedroom apartment in a luxury condo project. This could explain why landed homes suffered the biggest rental drop in 2Q2016, falling 1.6% q-o-q and 6.1% y-o-y, according to URA. Non-landed homes, on the other hand, saw the rental index decline 0.4% q-o-q and 3.3% y-o-y.
CCR bucked the trend in 2Q2016
The rental index for the Core Central Region (CCR) bucked the trend in 2Q2016, registering a 0.1% q-o-q growth. “It is, however, still too early to tell whether this trend will continue because the higher rents could be a function of more smaller units being leased, which generally reflect a higher dollar psf rate,” says CBRE Research.
New condos in the vicinity of MRT stations along Downtown Line 2, which opened in late December, have also benefited. In the CCR, these include Robin Residences, 26 Newton and Fifteen Robin. At Fifteen Robin, which was completed in 2012, units are only available for lease, with the asking rent for two-bedroom apartments at $5,000 and for three-bedroom units at $8,000. “There is strong demand for units at this rental rate,” notes Savills’ Wong, who is marketing units in the project.
Average prime rents tracked by CBRE Research stayed unchanged in 2Q2016 at $4.35 psf per month, which is similar to the level in 1Q2016. Luxury housing rents eased 1.0% q-o-q to $4.75 psf per month, while rents in the rest of the island softened by 1.3% to $2.98 psf per month. Over the 12-month period to end-June, luxury housing rents fell 3.1%, while prime rents softened by 3.3%, and for the rest of the island, it was a bigger drop of 4.5%.
New project completions in the Outside Central Region (OCR) in 2Q2016, which included the 920-unit Riversails, 810-unit La Fiesta, 630-unit Q Bay Residences and 618-unit Parc Centros, have pulled down the rental index, which registered its biggest quarterly decline of 1.2%. The city-fringe neighbourhood, or Rest of Central Region (RCR), saw the rental index soften 0.6% q-o-q. “The continued weakness in these two regions could be attributed to excess supply coming from the recent completion of major condos,” says CBRE Research. Y-o-y, the rental index for OCR and RCR have declined 5.2% and 3.7% respectively.
Older condos hardest hit
Anecdotal evidence is that the larger apartments, especially those in older condos, have seen the biggest corrections in rents, mostly in areas where there has been competition from new supply. One example is Regency Park, a condo on Nathan Road in prime District 10. The project was completed in 1990, and all the units are sizeable, with three-bedroom apartments starting from 2,228 sq ft and four-bedroom ones from 3,455 sq ft.
Partially renovated four-bedroom units at Regency Park are now fetching rents of $13,000 a month, compared with $16,000 a year or two ago. Unrenovated four-bedroom units are now leased at $10,000 to $10,500 a month. “There is quite a disparity between renovated and unrenovated units,” observes Wong.
At Regency Park, partially renovated four-bedroom units are now fetching monthly rents of $13,000 while unrenovated units are going for $10,000 to $10,500
At the 15-year-old Ardmore Park condo, four-bedroom units of 2,885 sq ft used to be leased at $16,000 to $18,000 a month. At the bottom of the market last year, units were leased at $12,000 to $12,500 a month. Today, they have edged up to the $13,000-to-$14,500 range, according to a property agent.
Meanwhile, at Ardmore 2, rents of 2,024 sq ft, four-bedroom units have dropped from a high of $12,000 a month to the $8,500-to- $9,000 range, says the agent. “It’s partly due to the increase in supply of new condos in the Ardmore Park neighbourhood in recent years,” she notes.
Draycott Eight, located in the neighbouring Draycott Park, has four-bedroom units of above 2,800 sq ft. They used to fetch $16,000 a month. Rents are now in the $12,000-to-$13,000 range. “Some of the tenants were concerned about the noise when Hampton Court next door was pulled down last year,” says JTResi’s Tan. “They were worried about living next to a construction site for the next few years.”
Concerns about living beside a construction site have also affected rents at The Grange, just off Grange Road. Four-bedroom units of about 2,300 sq ft that used to command rents of $10,000 a month are now going at $7,500 a month. However, once the construction of the adjacent Orchard Boulevard MRT station on the Thomson-East Coast Line is completed, residents at The Grange will benefit from the connectivity, says Tan.
With the demolition of Hampton Court next door, some tenants at Draycott Eight are concerned about the construction in the coming years
Construction of the Orchard Boulevard MRT station has affected rents of some apartments at The Grange that face the site
Mounting pressure on rents
In 2H2016, the high number of vacant units will continue to put pressure on rents, says CBRE Research. Projects expected to be completed in 2H2016 include the 52-unit Cluny Park Residence and the 268-unit Cairnhill Nine in the CCR; the 366-unit Corals at Keppel Bay and 508-unit Echelon in the RCR; as well as the 483-unit Eco Sanctuary, 616-unit Jewel at Buangkok and 992-unit Watertown in the OCR.
The 992-unit Watertown is expected to be completed by year-end
“While some owners who have the holding power are prepared to leave their units vacant, there are those who prefer to lower their rental expectations to earn some rental income,” notes CBRE Research.
As for tenants like Robertson, she believes she will have more choices when her lease expires next year. Her wish list includes “an apartment with a view, non-partying neighbours, a well-maintained condo and facilities such as a 50m lap pool”.
This article appeared in The Edge Property Pullout, Issue 746 (Sep 19, 2016) of The Edge Singapore.