Private residential rents fall by 1.9% q-o-q in 1Q2024; further softening expected

By Nur Hikmah Md Ali

/ EdgeProp Singapore |

April 27, 2024 10:40 PM SGT

Non-landed properties (excluding executive condos or ECs) saw a more moderate decline of 1.6% q-o-q following a 1.8% q-o-q fall in 4Q2023 (Photo: Samuel Isaac Chua/EdgeProp Singapore).

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Private residential rents fell by 1.9% in 1Q2024, consistent with the 2.1% fall in 4Q2023. Landed properties led the rental decline, falling 4.2% q-o-q in 1Q2024, after a 4.2% drop the previous quarter.

Non-landed properties (excluding executive condos or ECs) saw a more moderate decline of 1.6% q-o-q following a 1.8% q-o-q fall in 4Q2023.

By market segment, non-landed city fringe or Rest of Central Region (RCR) rents led the decline, down by 1.9% q-o-q, followed by the prime or Core Central Region (CCR) and suburban or Outside Central Region (OCR) which posted falls of 1.6% and 1.4% q-o-q respectively.

"The fall in rents came on the back of 19,968 new private homes completed in 2023," says Tricia Song, CBRE head of research for Singapore and Southeast Asia.

Most of the new completions were recorded in 3Q2023. "As a result of the bumper completions, vacancy spiked, resulting in rentals easing since 4Q2023," notes Song. She points out that the new completions are the highest since 20,803 units were completed in 2016.

‘Respite’ in level of new completions in 1Q2024

Conversely, only 241 units were completed in 1Q2024, primarily the 200-unit Meyer Mansion. Net completed stock shrank by 188 units in 1Q2024 due to the demolition of old projects for redevelopment.

The 241 units in 1Q2024 was the lowest level since 1Q2020, says Marcus Chu, CEO of ERA Singapore. "This respite allows the market to gradually absorb the avalanche of completions from 2023," he says.

Vacancy rates have come off across the board: In the CCR, it stood at 8.9% at the end of 1Q2024, compared to 9.8% the previous quarter; RCR vacancy ended the quarter at 6.6%, down from 8.1% in 4Q2023; and the vacancy rate in the OCR was 6% in 1Q2024, down 7.4% q-o-q.

"While demand appears to be resilient, rents should ease as the market digests the higher supply from peak 2023 completions," says CBRE's Song.

CCR to face significant rental pressure

Tenants moving to newer private homes in sought-after locations with improved amenities might still encounter rent increases, says Chia Siew Chuin, JLL head of residential research. "Additionally, tenants renewing leases might face higher rents compared to the lower rates they had committed to in their previous leases."

It’s because landlords face higher property taxes, higher property prices (requiring higher returns), and higher mortgage payments from higher interest rates, notes CBRE’s Song. The 15-month wait-out period for downgraders buying resale HDB under the September 2022 round of cooling measures has also ushered in a new group of local home renters. Factoring these, she does not expect rents to fall to pre-2022 levels.

With the CCR still facing a relatively high vacancy rate, it will be under significant rental pressure in 2024. JLL’s Chia expects rents in higher-tier market segments to stay depressed before stabilising towards the end of 2024, when economic conditions and hiring are expected to improve.

"Should rents in sub-markets of CCR and RCR become less prohibitive, narrowing the gap with rents of the mass-market homes in the OCR, prospective tenants may be drawn back to the higher tier markets", Chia says.

New completions to taper off next two years

The stock of occupied private residential units (excluding ECs) increased by 5,423 units in 1Q2024, compared with the increase of 4,926 units in the previous quarter. As a result, the vacancy rate of completed private residential units (excluding ECs) decreased to 6.8% at the end of 1Q2024 from 8.1% the previous quarter.

New completions are expected to taper off over the next two years, notes CBRE, with 8,404 private homes scheduled for completion from 2Q2024 to 4Q2024, and another 5,700 private homes projected to be completed by 2025.

The level of new completion in 2025 and 2026 is projected to fall to an average of about 6,691 units annually, significantly below the 10-year average of 13,275 units, according to Wong Xian Yang, Cushman & Wakefield (C&W) head of research for Singapore and Southeast Asia.

In 2023, rents were up 8.7% for the whole year. Wong is projecting a mild drop of 5% in rents this year. He attributes the drop to the cumulative effects of a surge in rental supply, increasing tenant resistance to rental hikes by landlords, and moderating rental demand.

With rents having fallen 4% for two straight quarters (4Q2023 and 1Q2024) and are now 52.1% above the pandemic lows in 3Q2020, CBRE's Song on the other hand, is projecting rents to ease to 1% to 3% in 2024.

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