Sky-high private residential rentals pierce pandemic gloom

THE Singapore residential market in 2021 was largely impervious to the debilitating effects of the Covid-19 pandemic. Alongside news of strong sales in new private residential projects dominating headlines, rental demand also surprised on the upside, a result of the confluence of several demand and supply factors driving the rental market.

The number of private home completions has been muted since 2018, a trend that has been exacerbated by construction delays caused by the Covid-19 outbreak in early 2020.

Rental demand for private homes has been driven by foreign skilled workers and professionals stuck in Singapore due to border restrictions in 2020 and part of 2021. As well, we are seeing a slow return of foreign talent into Singapore in some sectors.

The outlook for the private residential rental market this year is expected to be just as buoyant.

Leasing activity and rents have gained steady, progressive traction, after the Urban Redevelopment Authority's non-landed private residential rental index dropped by a restrained 1.1 per cent quarter-on-quarter in Q2 2020 during the circuit breaker. This resulted in a mild 0.5 per cent drop for the whole of 2020. In 2021, the index rose every consecutive quarter, resulting in a full-year increase of 9.9 per cent (see bar chart). This is the highest annual increase since 2010, when the index surged 18.4 per cent.

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The volume of rental contracts for non-landed private homes islandwide likewise swelled, constrained only by the tight inventory. The slight 1.8 per cent decline in 2020 rental volumes was short-lived. Bolstered by robust demand factors, the number of rental contracts rebounded by 6.5 per cent in 2021 to 92,235, the highest since 2000.

While the size of the rental market naturally grows with expanding residential stock necessary to accommodate a growing population, construction delays disrupted the schedule of new completions. Only 3,433 private residential units (landed and non-landed) were completed in 2020, the lowest figure in 25 years.

Last year saw an increase in completions to 6,388 private homes but this was considerably below the 5-year average of 14,572 private homes before the pandemic, from 2015 to 2019.

In the near term, the beleaguered construction industry is not expected to rebound immediately, and a modest 11,247 units are estimated to complete in 2022.

This is a quantum that is unlikely to relieve demand pressure in the months ahead.

In 2021, demand was uneven on a district level, with the prime areas being the most sought after. The prime Districts 9 and 10 were the top two by rental volume, with District 9 recording the highest number of non-landed leasing deals at 9,975 (a 17.0 per cent year-on-year increase) and District 10 at 8,528 (a 8.3 per cent y-o-y increase).

Expatriates and affluent professionals continue to value the accessibility of Districts 9 and 10 to the city centre and Orchard Road as well as their proximity to branded schools. Many were willing to pay a premium for such high-quality rental stock. As a result, the average rent rose 3.5 per cent in District 9 and 4.5 per cent in District 10 year-on-year in 2021 (see comparison chart).

Although there has been some outflow of foreign professionals since the second-half of 2021, as vaccination rates picked up and countries started to relax travel restrictions, rental volumes in Singapore's prime regions continue to be healthy because of the gradual inflow of fresh foreign talent supporting growth sectors such as technology and healthcare.

In addition, the nature of the pandemic continues to spur overseas-based Singaporeans who previously leased out their prime apartments here to return home, causing stock to be withdrawn from the luxury market as they re-occupy their homes.

Living near the beach in the East

District 15, with its proximity to lifestyle and recreational amenities such as the coastal parks stretching from East Coast Park (ECP) to Changi, has been a traditional hotspot and even more so recently. In 2021, some 8,377 rental contracts for District 15 were signed, 10.5 per cent more than in 2020 and the third highest after Districts 9 and 10 (see map).

Average rents in the district jumped by 7.6 per cent y-o-y to about S$3.26 psf per month in 2021, after dipping in 2020.

Dwelling preferences have changed or become more distinct with more time spent at home.

Seaside Residences is an example of a recently completed project in District 15 that has sea views along the ECP stretch. It obtained its Temporary Occupation Permit (TOP) in 2021 and fetched an average rental of around S$4.95 psf per month across 308 leasing contracts in the project in the same year. This rental level is comparable to some projects in District 9.

District 15, with its unique charm, continues to appeal to expatriates and locals who prefer a location that is close enough to the Central Business District (CBD) with plentiful lifestyle offerings.

Upgraders and/or families awaiting the completion of apartment and condo projects where they have bought a unit might also rent in the area in the interim.

Heartland living

Moving outward into the heartland areas, District 19 (Serangoon Garden, Hougang, Punggol) had an especially high number of 6,357 rental contracts in 2021.

Other notable districts include Districts 16 (Bedok, Upper East Coast, Eastwood, Kew Drive) and 23 (Hillview, Dairy Farm, Bukit Panjang, Choa Chu Kang), with some 4,529 and 3,731 contracts respectively.

While rents increased y-o-y in 2021 across almost all districts (except District 6, due to its small geographical size - see comparison chart), more cost-conscious tenants looked towards private homes near HDB flats for a greater chance of locking in a more affordable rent in the heartlands.

Those waiting for the completion of their HDB Build-to-Order flats might temporarily rent private apartments or condo units in the suburbs.

Millennials, single permanent residents and work-pass holders with more modest budgets might also be priced out of the other regions, and instead band together to lease an apartment in the heartlands.

Prior to the pandemic, some tenants would prefer to rent a home near their office in the city. However, in the work from home era, living in a central location may no longer be a priority for certain employees and tenants who could be increasingly drawn to the outskirts, given the lower rents there.

Tips for landlords and tenants

The private residential leasing arena is today a landlord's market, and demand is expected to remain firm, propelling an upward rental trajectory of about 7 per cent this year. While some landlords might have been locked into leases during the 2020 circuit breaker at depressed rents, the current spike in rental rates presents an opportunity for them to capitalise on the roaring demand upon lease renewal.

For families or tenants who require a larger space, the inventory of 3 to 4-bedroom apartments is scarce, and prospective tenants will need to be decisive and quick in securing available units.

Tenants feeling the heat from rising rents might wish to consider before committing to long leases, as there is every chance that they would be able to rent at lower rates after 12 to 18 months should some normalcy return to the construction sector and cross-border travel, thereby stabilising the private leasing market.

Leonard Tay is Head, Research, Knight Frank Singapore. Khoo Zi Ting is Analyst, Research, Knight Frank Singapore.