Tough 2021 for residential landlords as rent budgets, foreign workforce shrink

Singapore

IT'S going to be another gloomy year for private residential landlords as cuts to tenants' rental budgets continue while more foreigners lose their jobs in Singapore.

And don't hold out for the Chinese tech companies which are expanding in Singapore to fill the increasing number of empty homes, as it's far from clear how many expats they will send here.

The vacancy rate is estimated to rise to 7 per cent and 8-9 per cent for full-year 2020 and 2021, respectively.

At end-Q3 2020, the vacancy rate was 6.2 per cent, and there were 23,171 units of vacant private residential units (both landed and non-landed). It was up from 5.4 per cent in Q2 2020 and 20,182 vacant units.

The highest vacancy rate since 2010 was in Q2 2016 when it hit 8.9 per cent, which resulted in 30,310 homes standing empty.

Hardest hit will be posh homes which could see rents fall 2-3 per cent for 2020 and by another 3-5 per cent in 2021 as rental budgets get cut, said Savills Singapore executive director Alan Cheong. Rents of non-landed properties in the core central region (CCR) fell by 2.1 per cent from Q2 2020 to Q3 2020.

"The vacancy rate for 2020 is estimated at about 7 per cent. For 2021, we estimate a vacancy rate of 8 per cent to 9 per cent," said Mr Cheong.

Wong Xian Yang, associate director, research, Cushman & Wakefield projects a vacancy rate of 6.5 per cent for 2020.

"Despite poor economic conditions, we don't expect vacancy rates to rise sharply given limited new supply due to construction delays due to the pandemic situation. Only around 3,000 new residential units are expected to complete in 2020," said Mr Wong.

"For 2021, vacancy rates could move up to around 7.5 per cent by the end of the year given an increase in supply and muted demand due to poor economic conditions and air travel restrictions," he said.

As for rents, he expects private non-landed rents to fall by about 0.5 per cent for the whole of 2020.

"For 2021, we expect the decline in rents to continue, albeit gradually, given limited supply of new units in 2021. Overall rents could fall by -2 per cent to -1 per cent in 2021," said Mr Wong.

"The private rental market is perhaps one of the 'greater casualties' of the pandemic when compared to other property segments," said Christine Sun, head of research & consultancy at OrangeTee & Tie.

As a result of strong government support for local employees, residents were relatively less vulnerable to redundancies than foreigners.

"New foreign employment shrank significantly amid a grimmer hiring outlook," said Ms Sun.

Non-residents took the biggest hit during the pandemic, according to a Ministry of Manpower report released in December.

It found that the total number of people working, excluding foreign domestic workers, fell by 158,700 from January to the end of September. Non-residents made up 139,100 of this.

In the third quarter alone, non-resident employment declines were most evident in construction, manufacturing, transportation and storage, and administrative and support services.

The government policy is to attract certain highly skilled workers to Singapore, such as in the IT and the pharmaceutical industries, said Nicholas Mak, ERA Realty head of research & consultancy. "But these workers are also in high demand in other countries. Some will come to Singapore," said Mr Mak.

The expansion of Chinese tech companies in Singapore such as Alibaba, Tencent and ByteDance could provide a little relief, but beleaguered landlords should not bank on this.

Of the four digital banks licences awarded in Singapore, two were nabbed by Ant Group and a consortium comprising Greenland Financial Holdings, Linklogis Hong Kong and Beijing Co-operative Equity Investment Fund Management.

"In China, what companies typically do for out of city employees is to rent a multi-bedroom apartment to house them," noted Mr Cheong.

"Its still early days to predict the outcome as to how many foreigners Chinese tech and social media companies will (bring) to Singapore. Chief amongst which is the question of why spend so much more on staffing and accommodation costs when work can be done from China and then electronically dispatched out?" he said.

"Presently, it seems that there is a lot of hype and people are putting the cart before the Chinese tech horse. All this could end in disappointment," said Mr Cheong.

There is a sizable proportion of mainland Chinese tenants in Singapore, and their budgets are quite varied and their income range can be quite wide, said Ms Sun.

"It also depends on whether they are here for study or work," she said.

For those who are here to work, many prefer to rent near their offices in locations such as Kovan, Jurong, Clementi, Punggol and Tampines, she said. "Many have also rented HDB resale homes," said Ms Sun.

Savills' Mr Cheong said Caucasians with families usually cluster around schools which offer their home countries' education.

The Australians and French with children tend to congregate around the Serangoon Gardens and Lorong Chuan area. Americans either rent near the Singapore American School in Woodlands or around District 10 to be close to the American Club, a major focal point for their social activities, he said.

The British are spread out throughout the island while more South Koreans would be found around the Hillview/Bukit Batok area. Japanese would be in the West and the East as Japanese schools have campuses in these respective areas. The Germans would be around the Upper Bukit Timah/Dairy Farm area. The South Asians would cluster around the East Coast area and of late, are increasingly seen in condominiums around Upper Bukit Timah/Bukit Panjang.

Mr Cheong said that those without families would rent studios or co-share homes that are often either within the CBD or at the fringe. Other areas in favour are around East Coast/Joo Chiat. Tenants working in Changi Business Park tend to look around Bedok/Tanah Merah while those living in Holland and Queenstown would likely work in the CBD or One-North.

As expats downgrade, rentals in the rest of central region (RCR) for 2020 are expected to remain flat, said Mr Cheong.

"However, with more new completions in 2021 and the trickle down effect of rental budgets being slashed, rents for the RCR in 2021 is expected to fall by 3 per cent," he said.

The only region to do well is the outside central region, or OCR, where rents rose one per cent in Q3 versus Q2.

"Rents in the OCR in 2020 is forecast to rise 2 per cent as this region is the backstop for all those who wish to rent private residential properties. For 2021, we also expect rents in the OCR to rise, albeit marginally by one per cent to 2 per cent," said Mr Cheong.

Cushman & Wakefield's Mr Wong said some tenants who used to share spaces might have opted to look for their own space given the on-going pandemic and fear of infection.

The best places to be a landlord?

It's Red Hill and Tiong Bahru in District 3 where rental rates grew 7 per cent year-on-year (yoy) in Q3, according to ERA's Mr Mak who analysed the median rental of all the 28 postal districts.

Next is District 14's Geylang and Eunos with gain of 6.2 per cent yoy, while High Street and part of Beach Road in District 6 enjoyed a rental rise of 5.9 per cent.

On the other hand, the homes which fared the worst were in Tanjong Pagar and Anson in District 2 where the rental rate plunged 7.8 per cent yoy. The rental rate decline in Little India, Farrer Park and Jalan Besar in District 8 was 6.8 per cent yoy, while it was down 6.4 per cent in District 21's Upper Bukit Timah, Clementi Park and Ulu Pandan.