When Will Singapore s Private Residential Leasing Market Turn Around? June 2016
Rents have been declining in all sub-markets The Urban Redevelopment Authority s (URA) rental index for private homes has fallen continuously by 9.1% over 10 quarters from 3Q13 to 1Q16. In the non-landed home segment i.e. apartments and condominiums, the largest drop in the rental index was in Outside Central Region (OCR), where a decline of 10.4% was recorded from 1Q13 to 1Q16. This was followed by the 9.4% decline for Core Central Region (CCR) between 3Q13 and 1Q16 while rents in Rest of Central Region (RCR) declined least with a 6.0% slide from 1Q14 to 1Q16. The downward trend in rents stemmed from softening leasing demand amidst significant growth in new supply. The sharper decline in rents in OCR which is the suburban mass market is mainly due to it being hit hardest by the 16.0% increase in total stock in the last two years. Total stock in CCR and RCR rose by a lower 9.7% for the same period. The RCR or city fringe sub-market has been more resilient as its rents are more affordable compared to those in CCR which includes the prime districts. There are tenants who have shifted from CCR to RCR due to cuts in housing budget or just to save on rents. Change in Rents Between most recent peak in 2013-2014 and 1Q16 Change in Total Stock From 1Q14 to 1Q16 Rest of Central Region -6.0% Core Central Region -9.4% Outside Central Region -10.4% Central Region (CCR & RCR) 9.7% Outside Central Region 16.0% 2 JLL
Slowing demand coincides with surge in completed supply During the recovery after the Global Financial Crisis, residential land supply through government land sales and collective sales increased substantially to meet pent-up demand from home buyers, especially between 2010 and 2012. The robust sale of new private homes during that period has led to record levels of newly completed supply coming on the market in the last two years. The total stock of private residential properties increased 13.2% in 2014 and 2015 to 327,448 units as at 4Q15. An average of 19,500 units per annum was completed during those two years, which is 71% higher than the five-year annual average of 11,400 units between 2009 and 2013. Consequently vacancy rate rose rapidly from 5.2% in 1Q13 to 8.1% in 4Q15, which is the first time in ten years that it has crossed 8%. The vacancy rate declined to 7.5% in 1Q16 due to much lower completions in that quarter. With the expected large supply of completed private homes in the remaining three quarters of 2016 and the current soft leasing demand, vacancy rates are likely to increase in subsequent quarters. has contributed to the policy tightening on intake of foreign labour. In the last four years the growth in employment pass (EP) holders was barely 1.7% per annum while in the preceding four years, it was 15.3% per annum. This was partly due to the measures that were put in place in the last few years. For example, the minimum eligible salary for EP holders was raised from SGD 2,500 in 2011 to SGD 3,300 in 2014 via three rounds of changes in regulations. In addition, the minimum salary for work-pass holders who wish to bring their families to Singapore was revised upwards by 25% to SGD 5,000 from September 2015 which would discourage some foreigners from taking up work assignments in Singapore. The current economic slowdown and challenging business environment have also led to tighter housing budgets for corporate tenants. There are also expatriates who are leaving Singapore and invoking diplomatic or repatriation clauses to pre-terminate their leases. While completed supply surged in the last two years, leasing demand had been slowing. The concerted drive to raise productivity levels Figure 1: Inverse Relationship between Vacancy Rate and Rental Index Index 140 Vacancy 12.0% 120 10.0% 100 80 60 40 8.1% 8.0% 6.0% 4.0% 20 2.0% 0 0.0% 1Q90 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 Private Residential Property Rental Index Vacancy Rate Source: URA, JLL Research When Will Singapore s Private Residential Leasing Market Turn Around? 3
Attributes of successful projects Map 1: Popular Projects for Leasing with Median Rents as at 1Q16 The Tennery $3.4 psf The Greenwich $3.2 psf Cardliff Residence $4.2 psf Casa Cambio $4.3 psf Proportion of developments leased one year after their completion in 2014* 90% and above 75-90% 60-75% Nottinghill Suites $4.3 psf Viva vista $5.6 psf The Foresta @ Mount Faber $6.3 psf Gilstead Two $4.5 psf** Loft @ Nathan $4.9 psf** Spottiswoode 18 $5.9 psf Guillemard Edge $4.6 psf Altez $6.6 psf 76 Shenton $5.6 psf Concourse Skyline $4.6 psf The Boutiq $5.6 psf Core Central Region Rest of Central Region Outside Central Region Source: URA, JLL, OpenStreetMap, MapBox, esri *May include repeated short lease renewals of less than one year for the same unit. ** Median rents in Gilstead Two and Loft @ Nathan were as at 4Q15 due to insufficient rental contracts in 1Q16. ***Most leasing transactions at The Foresta @ Mount Faber in 1Q16 were for small units sized between 400 and 500 sqft. The projects shown in map 1 are those completed in 2014 and had the highest proportion of units in their respective developments leased, one year after completion, in their individual sub-markets. The proportions for CCR and RCR are higher, indicating that they cater more to the leasing market as compared to OCR. In CCR, developments within the CBD such as 76 Shenton and Altez found popularity with tenants especially those working in the city due to their proximity to places of work, entertainment, amenities and MRT stations. The Boutiq is close to Orchard Road while Gilstead Two and Loft @ Nathan are within the prime districts with easy accessibility to the city and near abundant amenities. Loft @ Nathan which has an average unit size of 580 sq ft was popular with tenants seeking small one to two bedroom units while the other four projects had average unit sizes of 760 to 970 sq ft, offering more units with two and three bedrooms. The high median rent achieved at Altez is partly due to the panoramic views of the city and the sea afforded by this 250m tall 62 storey building. In RCR, Concourse Skyline and Spottiswoode 18 are just outside the CBD and just as convenient as offerings within the city. Although Guillemard Edge, The Foresta @ Mount Faber and Viva Vista are outside the city, they were nevertheless popular due to easy accessibility by road transport or MRT and availability of amenities. Except for Concourse Skyline which has an average unit size of 1,050 sq ft, the other projects average unit sizes ranged from 470 to 720 sq ft. More three bedroom units were leased in Concourse Skyline while leasing in the other projects was driven by one and two bedroom units. The OCR or suburban mass market is a predominantly owner occupier market but is still popular with the more budget conscious tenants, being cheaper to rent than CCR or RCR. Casa Cambio has strong location attributes, being near to Serangoon MRT station and Nex shopping mall. The Tennery is also well located as it sits above Ten Mile Junction and LRT station, an integrated retail and transport development. While the other three developments are not that near MRT stations, they nevertheless enjoy good road connectivity and proximity to amenities. The units in Casa Cambio, Cardiff Residence and Nottinghill Suites are smaller, averaging between 470 and 580 sq ft while The Tennery and The Greenwich have an average unit size of 700 sq ft and 810 sq ft respectively. The greater proportion of units leased in these projects are of one and two bedroom configurations with one-bedders being more popular in some of them. This review of popular leasing projects has revealed that small units of one to two bedrooms seem to account for the bulk of demand. The phenomenon is probably driven by affordability especially during this challenging period for businesses which have become more cost conscious with tighter housing budgets. Companies may prefer to send personnel who are single or with small families to Singapore in order to manage cost. However this does not suggest investing in a one or two bedroom unit is a sure winner. While the projects featured in this discussion have leased successfully, there are many others struggling to find tenants due to the oversupply. It is still a combination of positive attributes that will give a project an edge over others in attracting tenants and fetching favourable rentals. 4 JLL
Outlook: Rental Market Likely to Stay Soft until 2017 before Bottoming Out URA data shows that nearly 20,516 new private residential units are expected to be completed in the remaining three quarters of 2016. Together with 2,919 units completed in 1Q16, the total completion for 2016 is likely to add up to 23,435 units, following the strong completion momentum in the last two years. This is expected to raise vacancy rates further as leasing demand could deteriorate due to the economic slowdown while restrictions on hiring of foreign labour remain in place. The rental market is likely to remain soft until 2017 before bottoming out. New completions in 2017 and 2018 are estimated at around 13,000 and 10,000 units respectively, significantly lower than the annual supply from 2014 to 2016. That could pave the way for a recovery in the leasing market, provided leasing demand improves sufficiently under better economic conditions, to balance against the supply that had been built up in the 2014-2016 period. About the authors Ong Teck Hui National Director Research & Consultancy at JLL Singapore Hannah Pham Research Analyst Research & Consultancy at JLL Singapore When Will Singapore s Private Residential Leasing Market Turn Around? 5
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