Sunday, December 16, 2012

Number of residential rents signed and vacant units up

According to a report released by Savills, total number of residential rental agreements in the first 10 months of 2012 has reached 42,139, a number just 2,923 leases lower from the record high of 45,062 in 2011. Since November - December period historically see an average of around 3,000 leasing deals for each month, the full year’s leasing volume is expected to hit around 48,000 transactions.

The number of condo rents in Singapore has reached 37,886 between January - October 2012 which is a little lower than the full year’s transactions of 40,222 in 2011. According to Savills, the total number of leases for condos and houses will record new highs by the end of the year.

But this does not necessarily mean that landlords in Singapore can increase already ultra-high rents readily. While the demand is increasing for rental units, possible due to government property sales cooling measures which prices out some people from sales market, supply is increasing faster with more homes completed over the past year, the rental market has seen a significant rise in vacant units in Singapore. Although an increase in rental agreements from 45,062 to 48,000 represents a sharp 6.6% increase in demand, the number of vacant units has increased by much sharper 32% from 12,740 to 16,877 units from Q1 2011 to Q2 2012. As of Q3 2012, the number of vacant condos is 14,198 units and vacant houses is 2,679 units.

And if you are planning to invest into property for rental yield, take a note that the flood of private property supply in Singapore is just beginning. According to URA data, 91,869 new homes will be released in Singapore in the next 5 years, and more than half of these units are already sold. So the growing supply of new residential property is a significant risk to investors who have bought their private properties for rental investment. If a very likely rental yield decrease coincides with a interest rate hike, the rental income - mortgage payment may easily turn to deeply negative cash flow.

Nevertheless, 2012 saw a 7% year-on-year increase for condo rents in Singapore. Based on URA data, Singapore rents for condos and apartments (excluding the executive condominiums) reached a new height of $3.75 per sq ft per month in October.

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