Monday, March 7, 2011

Rent in Singapore may fall in 2011

Rent in Singapore has very unique supply-demand games since most of the demand for rent comes from foreigners. Singapore has the top homeownership ratio where even majority of the bottom 20% of the population have their own flats, which is very rare in the world. This makes demand extremely responsive to economic growth which effects foreign intake.

In the demand side, 2011 will be a "normal" year compared to 2010 with respect to growth and less jobs will be created compared to 2010. This means less new comers for rental demand. Actually in terms of new comers, 2010 was an extra-ordinary year. In this period, EP holder numbers jumped from 115,000 to 142,000 (more than 20%) and S-Pass holder numbers jumped from 82,000 to 98,000. 2011 will probably not see these huge jumps given the fact that the government is willing to encourage companies to hire more locals and the growth rate will be more moderate.

On the other hand by late 2011, properties bought by investors in previous years will be completed and ready for the tenants:
Data from URA analyzed by Kim Eng indicates that 40,850 new completed units are expected to hit the market by 2015. About 9,000 of these units are due to come this year, with close to 70 percent of that coming from the rental areas outside district 9,10 and 11. 
With  a large proportion of the supply likely to be rented out, analyst expect the new supply will put some pressure on rents. Source: The Straits Times 

This means although expat choice districts of 9,10 and 11 would not see a dramatic fall in rents, properties in non-traditional renting districts will feel the pressure. The Straits Times also reported that signs of softening rents can be seen in district 15 (Katong, Siglap, Marine Parade) where homes went for 4500 SGD per month a few months ago but now can fetch something between 4000 SGD - 4300 SGD per month for rent.

What is also supporting supply is the property cooling measures introduced in Jan 2011 and aiming to cut speculators.
  • Increase the holding period for imposition of Seller’s Stamp Duty (SSD) from the current three years to four years;
  • Raise the SSD rates to 16%, 12%, 8% and 4% of consideration for residential properties which are bought on or after 14 January 2011, and are sold in the first, second, third and fourth year of purchase respectively;
  • Lower the Loan-To-Value (LTV) limit to 50% on housing loans granted by financial institutions regulated by MAS for property purchasers who are not individuals1; and
  • Lower the LTV limit on housing loans granted by financial institutions regulated by MAS from 70% to 60% for property purchasers who are individuals with one or more outstanding housing loans2 at the time of the new housing purchase;
These measures left a lot of speculators with properties in their hands and since they do not buy for owner occupation they will have to rent them out.

But do not forget, these measures also support the demand. Lots of PRs would prefer to buy an HDB instead of paying 3500+ SGD per month to a condo but since buying a resale HDB is harder for them with the latest measures, they will prefer to rent.

This blog article is to provide general information only and should not be treated as an invitation to buy or sell any property or as sales material.  Users of this report should consider this report as a one of the many factors in making their investment decision. Users should make reference to other sources of information and specific investment advice to obtain a more objective view of the property market. Asia Singapore shall not be responsible for losses suffered.

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