Residential rental activity picking up as rates find bottom
After a year of flat or falling rents, tenants have better options, landlords more receptive
SINGAPORE’S residential rental market seemed to have bottomed after a protracted period of decline.
Median rents for private non-landed homes ticked up from S$4,200 per month in the second quarter of 2024, to S$4,300 in the third quarter.
The upturn comes after a period of rents stagnating or falling for a year since a peak at S$4,550 per month in Q3 2023, indicating that overall, the market may have found a floor.
What is likely to follow is a surge in market activity, with tenants benefiting from a broader array of affordable housing options. Landlords who were previously less inclined to negotiate after the hefty hikes of 2022 and 2023 are showing greater receptiveness to accepting lower offers.
More competition from a fresh supply of newly completed homes, and easing inflationary pressures has led property owners to be more open to lower rents, after resisting previously due to higher expenditures, increased maintenance costs and elevated property taxes.
Tenants may relocate to higher-priced accommodations that have now become more economically viable. Others may move closer to the downtown core for convenience, or move to luxury properties where rents appear to have fallen the most.
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The luxury market experienced the steepest market correction among the submarkets. After reaching a record high of S$6,250 per month in Q3 2023, median rents in the prime Core Central Region (CCR) dropped by 10.4 per cent to a low of S$5,600 in Q2 this year. CCR rents rose to S$5,700 in Q3 2024.
In the city fringe areas, or Rest of Central Region (RCR), median rents fell to their lowest in recent quarters in Q2 2024 at S$4,200 per month, but have since risen to S$4,300 in Q3. The correction in the city fringe was less severe than in the luxury market, with only a 6.7 per cent decrease from its peak median rent at S$4,500 in Q3 last year to the Q2 low.
In the Outside of Central Region (OCR) or suburban areas, rents similarly bounced off their S$3,700 median in Q2 2024 to rise to S$3,800 in Q3, and are down 5 per cent from the recent peak of S$4,000 per month in Q3 2023.
The suburban segment, however, may face supply-side pressure as over half of the 19,908 newly completed private homes last year were in the OCR. The increased rental stock may help rein in the pace of rental price growth.
Closing rent gaps
In the coming months, we can expect some subtle shifts as the price gap between market segments has narrowed significantly over the past year.
For example, in Q3 2023, the median rent in the prime CCR area was 38.9 per cent higher than in the city fringe RCR area. By Q3 2024, this gap had narrowed to 32.6 per cent due to a greater 8.8 per cent decrease in CCR rents compared to a 4.4 per cent decline in the RCR over the same period.
With a notable decrease in the rental price differential, there has been a discernible trend of more well-off expatriates relocating from city fringe areas to certain luxury residences. Moreover, luxury property owners are more willing to negotiate lower rental rates.
Fewer tenants may be moving from the suburbs to city fringe areas due to the widening gap between RCR and suburban OCR, increasing from 12.5 per cent in Q3 2023 to 13.2 per cent in Q3 2024. Rents for suburban properties fell faster with more completions in the region, by 5 per cent, compared to the 4.4 per cent decrease in city fringe areas.
As rents soften in the suburbs, some tenants, especially locals leasing larger flats, may well move to the private market.
Median rents for OCR private homes fell by 5.1 per cent from S$3,900 per month in September 2023 to S$3,700 in September 2024. Median rents for five-room and bigger HDB flats held steady at S$3,500 over the same period. Consequently, the rental gap has shrunk significantly from 11.4 per cent to 5.7 per cent.
The window, which amounts to a small increase of S$200 per month, may lead some HDB flat tenants to consider moving to a condo, especially those who do not mind a small private home. This shift may already be underway, as there has been a slight decrease in transaction volumes for the HDB rental market in September 2024 compared to the preceding month.
The decline in private home rents may have reached a plateau. But only further data in the forthcoming months will confirm if the market recovery is robust.
Given the prevailing scarcity of housing in the rental market, with an occupancy rate of 92.8 per cent as of Q3 2024, the probability of a further substantial decline in rents is minimal.
Only 5,376 units were completed in the first three quarters of this year, resulting in restricted supply. Even for the entirety of 2024, only 9,103 units are expected to be completed, a marked reduction from the 19,968 new homes completed in 2023.
On the demand side, there has been a noticeable increase in expatriates, international students, and foreign workers entering Singapore, leading to a surge in rental inquiries. It is also anticipated that business sentiment will experience an upturn as business costs are projected to decrease due to the prevailing lower interest rates.
Both the global and Singaporean economies are also forecasted to demonstrate positive growth in the current and ensuing years, potentially contributing to more favourable employment conditions and consequently benefiting the rental market through the potential hiring of more expatriates.
Christine Sun is chief researcher and strategist at OrangeTee Group, and Timothy Eng is assistant manager, research and analytics at OrangeTee & Tie
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