Private housing to hit record rental volumes

November 8th, 2011 at 1:30 am

The residential leasing market here is expected to hit an all-time high for this year. The robust volumes come on the back of strong economic growth and high employment rates notched up in the first half of this year.

Property consultancy CB Richard Ellis (CBRE) said in a new report that leasing volume, which has been growing since 2008, is expected to hit a record high this year with between 37,000 and 38,000 new leases and renewals inked.

The number of tenancies has been exceeding 30,000 since 2008 with the figure already hitting 31,083 in the first nine months of this year, the firm noted.

It was the strong first six months of the year, in particular, where Singapore enjoyed strong economic growth and high employment, factors that are expected to power the overall leasing volume this year.

CBRE added that there was a notable increase in rental interest, in particular, from international school teachers – who typically lease city fringe homes with monthly rentals of less than $10,000 – and energy firm employees.

The latest record was set last year, when 36,903 leasing contracts were signed.

But prospects for the leasing market have dimmed somewhat as the impact of the economic slowdown in the second half of the year begins to filter through.

Mr Li Hiaw Ho, executive director of CBRE Research, expects a lower leasing volume and possibly reduced rents next year.

‘Rents are likely to stabilise in the fourth quarter as leasing activity eases. The sluggish economic growth projected for 2012 may translate to reduced job opportunities for expatriates,’ he said.

‘Coupled with a high number of new completions (of property projects this year and next), there will be some pressure on rents going forward.’

The report also noted that the rise in the number of small-sized apartments in areas like Serangoon, Balestier and Geylang in the past few years and an increasing number of expatriates with lower budgets have led to city fringe rental gains outpacing those of city centre homes.

‘Renting in the city fringe area, near the Central Business District, is a viable option with more expatriates having switched over to local packages in recent years,’ Mr Li noted.

Non-landed housing rents in city fringe areas such as Balestier, Bishan and Geylang have increased steadily since the rental market bottomed out in 2009.

They are now at a median of $3.36 per sq ft (psf) in the three months to Sept 30 – about 17 per cent more than the previous height of the market in 2008, CBRE said.

In 2009, they dipped to $2.64 psf before a sharp 19.3 per cent recovery to $3.15 psf last year.

As a broad estimate, this means that a tenant would have to fork out a monthly rent of $4,032 for a 1,200 sq ft city fringe apartment in the third quarter of this year compared with $3,780 last year.

On the other hand, rents in the prime city centre area posted a lower increase of 15.6 per cent over the 2009 to 2010 period compared with the city fringe.

Prime rents recovered to $4.30 psf last year after having fallen to $3.72 psf in 2009 – or $5,160 from $4,464 earlier for a 1,200 sq ft home.

CBRE noted that this has led to the rental gap between the city fringe and city centre regions narrowing from 29 per cent in 2009 to 24.5 per cent in the third quarter of this year.

The Urban Redevelopment Authority’s data for the third quarter seems to bear this out.

Rentals for the city fringe region which includes Balestier and the East Coast, for example, rose 1 per cent compared with the quarter before. In contrast, city centre rents in areas like Districts 9, 10 and 11 rose a mere 0.4 per cent.

CBRE expects the gap to stabilise at about 26 per cent by the end of this year as rents in both regions remain stable in the coming months.

Apartments in suburban areas near MRT stations have also risen in popularity with average rents posting steady increases, the firm said.

Last year, monthly rents increased 17.5 per cent to $2.68 psf from a low of $2.28 psf in 2009 – or $3,216 from $2,736 for a 1,200 sq ft apartment.

Rents in suburban areas have increased at a slower rate than city fringe areas partly because of the large supply of HDB flats that are available for lease in those areas.