Rental prices to recover after a fall in H2’24 on supply lag

In 2023, the residential rental sector was divided into two halves. The first half of the year 2023 saw a good demand for non-landed residential properties, despite the completion of almost 7,000 homes. This followed a rent increase of 30 per cent in 2022.

Rents increased 6.2 per cent during the first quarter, but signs of slowing down appeared the next quarter. The landlords took a longer time to find a renter. The quiet job markets and the decline in rents for private properties have been a combination that has slowed the growth of rents over the past three quarters.

Affinity Serangoon (1052 units), Avenue South Residences (1074 units), Kent Ridge Hill Residences (448 units), Riverfront Residences (1472 units), Riviere (455) and The Woodleigh Residences (667) are among the large non-landed projects that will be completed by H1 2023.

In the second half, 2023, market conditions began to change. The H2 employment market slowed down in response to a sudden spike in private non-landed home completions. Rents stagnated in the third-quarter, with a 0.2 per cent growth. Rents in the fourth-quarter contracted by 1.8% for the very first time since the Q4 of 2020.

Amber Park (592 Units), Dairy Farm Residences 460 Units, Kopar at Newton 378 Units, Leedon Green 638 Units, Midwood 564 Units), Normanton Park 1,870Units, Parc Clementis 1,468Units, SengkangGrand Residences 680Units, The Florence Residences 1410Units, The M522Units and Treasure At Tampines 2,203Units were amongst the larger non-landed projects completed in 2023

The Core Central Region was most affected by the rent declines that occurred in both Q3 2023 and Q4 2023. The sharp rise in rents from 2021 forced tenants into the Rest of Central Region (RCR) and Outside Central Region. As a result, the number of vacant CCR homes increased to 8,494 by Q4 2023.

In 2023, the rents for non-landed private homes will rise 6.9 %, which is far less than the 30 % increase that was seen in 2022.

In seven districts, median gross rents declined for two quarters straight in Q3 2023 and Q4 in 2023. The largest declines occurred in District 21. (Upper Bukit Timah Clementi Park Ulu Pandan), and District 4 (Telok Blangah Harbourfront).

In District 21, median monthly gross rents decreased by S$4.10 (psf), or 2.9 per cent, in the third quarter and 8.9 per cent in the fourth. This was due to a new supply of non-landed houses and the displacement of tenants into other districts.

District 4 median gross monthly rents dropped by 5.7% in Q3 and 1.1% in Q4. They now stand at S$5.28. There was an increase in private non-landed home rentals in Sentosa. However, the homes tend to have larger sizes and the median gross rents are lower on a per-square foot basis. This contributed to the overall decrease.

In District 26, median gross monthly rents also declined, falling by 4.8 percent in Q3 and 1.8% in the fourth quarter to S$3.48/sf. The older projects in District 26 may have affected rents.

Rents in different areas have increased. In H2 2023, the median rents for non-landed private homes in District 25 (Kranji & Woodgrove), rose 16.5%, to S$4.61/month. Meanwhile, District 22’s median rents (Jurong), increased 10.3%, to S$4.92/month.

In H2, rents in the two areas that are distinct have risen significantly. The median rent of non-landed private homes in District 25 (Kranji & Woodgrove), grew by 16.5%, to S$4.61/month. Meanwhile, District 22’s median rent rose by 10.3%, to S$4.92/month. Rents were supported by the lack of new housing supply, and Woodgrove estates have a strong demand already due to their proximity with Singapore American School.

From Q4 of 2018 to Q4 of 2023, the rents increased by 54.7% while prices only rose by 32.3%. Rental growth exceeding capital values has led to an increase in estimated gross rental returns for private non-landed properties across the island.

Huttons estimates and calculations showed that District 25 was the most promising, with an estimated gross rental yield at Q4 of 2023 of 5%. It was followed by the District 22 (Jurong), with a gross rental yield of 4.5 percent, as well as District 2 (Anson Tanjong Pagar), District 8 (Little India), and District 4 (Seymour, Tanjong Pagar), both at 4.2 percent.

Rents in the private non-landed residential rental market are expected to rise over the next few decades, due to the lower supply.

Rents in H1 2020 may remain weak, as the market absorbs private non-landed homes. Estimates suggest that the supply of private non landed homes in 2024 will be 9,636 unit, which is about half of 2023’s total of 19,390 units. From 2024 to 2028 the average annual supply is expected to be 6,789 homes, down from the previous average of 8,119 homes.

In 2024, the economy may grow faster and increase demand for renters. Rents should fall in H2 2024.

Recent introduction of a new serviced apartment category for long-term stay has helped meet short-term needs. These apartments are unlikely to compete directly with private leases. Serviced apartment operators offer utilities and housekeeping as part of their package. They also pay for maintenance, so serviced apartment rentals are higher than standard residential rental rates.

Read more on : Lentoria

In order to ease the supply shortage, the government has also announced a temporary relaxation in the occupancy limit for larger dwelling units.

This will be effective from Jan 22, 2020 until Dec 31, 2026. However, landlords should also take into consideration the increased property taxes due to the recent increase in tax rates as well as possible wear and tear from housing more occupants. Tenants must consider the inconveniences of sharing bathrooms, living rooms and dining rooms with more people. The impact will likely be minimal.

The District 25 area (Kranji & Woodgrove) could continue to perform well in the coming years as no new non-landed private homes have been built since 2015.

The Johor – Singapore Special Economic Zone, which is currently in development, will strengthen the economic connection between Singapore and Johor.

More businesses could set up shop in Woodlands and Johor. The development of Woodlands Regional Centre will be boosted, as well as the demand for homes in district 25. This could lead to a sustained increase in capital appreciation and rents.

Investors will want to pay attention to a new development along Champions Way, in Woodlands. It is scheduled for launch in 2024.



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