In today’s Business Times (10 June), the headline news is about the current property market in Singapore. Titled ” Dark Condos shine light on rising vacancy”, the article depicts the excess capacity building up in the private housing market, evident with some condominium developments completed six to 12 months ago, or even longer, point to significant vacancy.
A host of factors were cited, such as
1) strong investment demand for real estate after the global crisis,
2) escalation in private home completions of late, and
3) slower expatriate inflow.
Vacancies are set to climb and rents fall in general. Suburban locations, where most of the supply is, will be the worst hit.
After the global crisis, investors sought refuge in trusty assets such as real estate. Fuelled by the low interest rate environment, some took to hoarding property at new launches and are hence not bothered whether they can find a tenant after taking possession of their units, say observers. Some high net worth foreign buyers treat their Singapore property as a holiday home and leave it unoccupied most of the time.
But there are others who leave units vacant because they are not able to find tenants. Competition for tenants is increasingly intense, with both demand and supply factors at work. On the demand side, changes in labour policies have slowed down the flow of foreign professionals into Singapore while on the supply side, there is a higher-than-average number of private home completions.
Tthose who bought for rental returns would find themselves in a more competitive leasing market today, where units in mediocre locations would be more difficult to lease and therefore remain vacant for a longer duration, especially during this period of strong supply.
Due to low rents, some owners have left their units empty, especially the cash-rich set who did not take any housing loan for their purchase. A vacant unit may deteriorate faster but leasing it out at a low rent may not be feasible since it will incur high maintenance costs. High-end properties have the finest finishes, so maintenance and repair costs may be hefty. Selected fit-outs and finishings such as tiles may be of limited collection and difficult to replace if it is damaged by the tenant.
Developers left with unsold units, especially in the slow high-end segment, also contribute to vacancies as these projects are completed. Other factors may also be at play in specific projects. But the overall trend of rising vacancies and softening rents is clear amid climbing private home completions since last year.
The 13,150 private homes that received TOP last year was 27.3 per cent above the previous year’s 10,329 and 40 per cent above the past 10-year average of 9,395. The figure for Q1 this year was 4,114 and the full-year tally is expected to hit 17,138, based on estimates submitted by developers to the Urban Redevelopment Authority. Thereafter, completions are slated to climb further to 21,738 next year and 26,252 in 2016 before easing the following year.
URA figures show that the pool of vacant private homes has risen to 19,284 at end-Q1 2014 from 18,003 at end-Q4 2013 and 14,532 at end-Q1 2013. The islandwide vacancy rate rose to 6.6 per cent at end-Q1 this year from 6.2 per cent a quarter earlier and 5.2 per cent at end-Q1 2013.
The latest quarter’s increase could be due partly to families that had yet to move to the new homes that were completed in Q1.
Rising vacancies have been accompanied by softening rentals. For the first time since Q3 2009, URA’s private home rental index contracted in Q4 last year. The index dipped 0.5 per cent quarter-on-quarter, followed by a further 0.7 per cent drop in Q1.
Prediction of drop in the rent ranges from 4-10 per cent. Against the backdrop of the large supply, some landlords could become more flexible on their rents, particularly after the removal of the vacancy tax refund with effect from Jan 1, 2014. Landlords now have to pay property tax on their vacant units and some may accept a lower rent and have the unit rented out instead of leaving it empty.
Competition for tenants is likely to be more intense in suburban projects, as the bulk of completions last year as well as the potential supply pipeline are in Outside Central Region (OCR). URA’s Q1 rental index for non-landed private homes in OCR was down 2.3 per cent from a year ago. This compares with a decline of 0.3 per cent for Core Central Region (CCR) and a rise of one per cent in Rest of Central Region (RCR).
Of the 67,507 homes under construction at end-Q1, about 59 per cent were in OCR, 22 per cent in RCR and 19 per cent in CCR. Four years earlier, of the slightly over 36,000 units under construction, the respective shares were 30, 36 and 34 per cent.
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