Money still to be made in property rental market

Despite falling property rental prices across the board as the market slump continues, home owners and investors are finding that there is still profit to be made in the home rental sector, at least earning them more than simply leaving their properties empty or waiting for money in the bank to earn them interest.

The AmstonA sudden and deep plunge in rents is quite improbable, and with slight adjustments of expectations, landlords will still find that there are tenants to be had in the current market. The median gross rental yield in May this year stood at 3.2 per cent, with median prices at $1,223 psf. Median monthly rents were down from $3.45 psf in April to $3.26 psf in May. The districts with the highest yields were 1, 2, 4,5 and 17 with the highest median prices at $1,960 psf in district 1 and 2 – in Chinatown, Raffles Place and Tanjong Pagar.

Property analysts are however expecting further reduction in yields as the foreign workforce plays musical chairs with the abundant number of rental units in the mark. Areas with fewer residential properties, such as in districts 1, 2 and where property prices are lower such as in district 17 (Changi, Loyang and Pasir Ris), rental demand tends to be stronger. Rents have however plunged in districts 20 and 8 of Ang Mo Kio, Bishan and Little india and Farrer Park respectively.

To buy or not to buy.

That is the question. When rental prices fall and rise according to property prices, which in turn are directed by local economies of scales and indirectly impacted by global economies and general market sentiment, that is often the question home-seekers ask themselves.

In the current market, is it wiser to buy or rent? Under what circumstances should you definitely choose one option over the other? Property analysts advice against renting while speculating on market direction as the uncertainties may not always work in your favour. Instead, the main factor should be whether renting or buying best suits your needs.

KembanganSuitesSingapore may very well be one of the cities in the world where most people own their homes. In many other cosmopolitan cities, rental is a more-than-common way of life. While renting may suit those who are not willing to be tied down by fixed monthly outlays such as mortgages, taxes and condominium maintenance fees, it also means that the money that goes into your rent does not ultimately accumulate into owning the roof over your head. There is also the danger of rental rates being raised and frequent moves.

Buying a property is not a small decision, and market advisors caution against doing so when you have not yet made sound financial calculations. The price differences in purchasing a freehold versus a leasehold property could also be considerable in the long run as most freehold properties tend to appreciate over time.  This then brings you to the considerations of when to buy and sell your property. While it is true that leasehold properties tend to depreciate, factors such as location and the competitiveness of neighbouring properties could also lend weight to the depreciation process, slowing it down considerably.

Rents dip for Hong Kong’s luxury properties

The shaky global economic situation may have a wider effect than just the countries directly hit. The effects of cutbacks and job losses in the oil, gas and banking sectors have resounded worldwide. The flow of expatriates between countries have decreased and those who are still living overseas have found their housing allowances slashed considerably.

HKCEntralThis has in turn reduced the demand for property rental, mostly in the luxury sector. Besides  Singapore, Hong Kong is also feeling the effect of change. In Hong Kong, monthly rental budgets of expatriates have gone down to approximately HK$100,000 and below. Gone are the days when expats could easily afford a HK$300,000 per month rental. In fact, most are making do with HK$30,000 per month housing budget for individuals and HK$70,000 for families, which barely allows for a 550 sq ft apartment in the Central district.

Housing prices which have shot through the roof in September has since fallen 14 per cent and high-end properties at Victoria Peak have suffered the largest blow. Rental prices have fallen in some cases as much as 30 per cent. But considering the rise in property rents have risen steadily year by year for the past decade, it may not be as drastic as it seems.

HongKongPeakHowever, does this mean that smaller and middle-range private apartments are benefitting from the trickle-down effect? Are expats now looking at a whole new range of property types which could mean fatter pockets for landlords and developers willing to fit into their budget? In fact, some developers have already begin offering discounts in the form of offering a month’s rent for free.

Rational decline in private home rental prices

Instead of a wild and dangerous free fall, the price decline in the property rental market has been encouraging in its lack of acceleration.

Property analysts say the “sawtooth” pattern in the fall of rental prices is understandable and manageable. There was a spike in rental volume in March due to the influx of foreign talents after the Chinese new year festivities, followed by a level performance in April which indicated a higher rental volumes for both the private property and HDB rental markets though leases signed now tend to be shorter than 6 months.

TheSoundCondoRents in the Outside Central Region (OCR) fell 0.1 per cent in April while that in the core central region (CCR) remained unchanged and in the rest of the central region (RCR) rental prices rose 01. per cent. In a year-on-year comparison however, rental prices have been falling, with a 3.9 per cent dip for HDB flats in mature estates and 5.4 per cent for private condominiums.

The rental volume was however 10.5 per cent higher than in 2015 despite a 10.3 per cent fall from March. Many new completed units were included in the 3,953 units were leased last month. The continued influx of completed new homes entering the market this year may dilute the tenant pool even further and resale units may find it even tougher to secure tenants as the year moves on.

HDB flat and private condo rental prices evening out

The difference between renting a HDB flat and a private condominium unit used to be $1,000. Today, the difference stands at only $500. The gap between HDB flat and private property rental prices have narrowed considerably, due not to the rise in HDB flat rents but in the drop in private apartment rents.

Qbay ResidencesIn the past, renting a suburban condo would cost you $3,100 to $3,300 a month. Now, it is possible to rent a suburban unit at $2,700. HDB executive flat and 5-room flat rental prices have remained around the $2,200 to $2,400 range for the past 5 years now.

HDB flatMuch of the rental drop comes from the sudden increase in supply of new private condominium units, with more landlords now jostling for the same or shrinking tenant pool. Many HDB upgraders will also join the HDB rental pool as they seek to rent out their HDB flats.

Property analysts are putting it up to the shrinking apartment sizes. The psf rents have remained the same, but tenants are now getting less floor area than they used to for the same amount of money. They are however picky about location and may be willing to accept a smaller-sized accommodation in a central located as opposed to a larger one further away from their workplace or town.

As the gap narrows, will the HDB flat rental market take an indirect hit as tenants opt for private properties over public housing?

Private home prices dip for 10 consecutive quarters

The delicate balance between population growth, economy growth and housing provision is not an easy one to strike. And Singapore as a young nation, will have to learn quickly as land is limited but the number of completed units to enter the market in the next couple of years is set to reach 23,000.

Cairnhill Nine CapitaLand

Photo credit: Cairnhill Nine by CapitaLand

Private property prices have been dipping for 10 consecutive quarters now, and the market will be under even greater pressure in the months ahead as supply continues to increase while demand remains stagnant. Rental prices are expected to fall even faster than sale prices and the global economic situation does not seem to be helping. Prices have fallen 9.1 per cent since Q3 of 2013 and non-landed suburban properties in the OCR (outside of central region) fell the hardest.

Part of the reason for the falling figures could be the cutback on land sales by the government and the consequent lack of new launches. Only 953 units were launched in Q1, but property players are expecting the momentum to pick up as the year moves on.

It the first quarter’s numbers were anything to go by, with sales rising 7.2 per cent to 2,847 units, volume may have increased across both the new and resale private home markets.

 

Rental market bodes well for HDB flats

The rental market has been on the downhill slip as a fresh crop of completed new private homes hits the market this year. Competition for an increasing limiting tenant pool will prove to be tough for private property landlords, but HDB flat rental prices are holding out well despite the softening rental market.

Paterson SuitesCore central region private apartments seem to be suffering the most with the global finance, oil and gas sectors in turmoil. Expatriates working here and their families have been moving out of the country, scaling the tenant pool for luxury and high-end prime properties down even further. For example, a 3-bedder in a 1,600 sq ft unit in Paterson Suites which would have tenanted at $7,000 in January is now offering $5,800 in rent.

Serangoon HDB flatPrivate property rental prices fell 1 per cent in March, while HDB flat rents fell just 0.1 per cent. Changes in immigration policies have reduced the foreign workforce in Singapore and those remaining may have to work around a smaller housing allowance, hence many private properties may be out of their rental budget. HDB flats are a fair and affordable option. For locals or HDB upgraders who have to rent a home while waiting for their new BTO flat or condominium to be built, private units often prove to be too expensive as well. Will the positive rental yields for the HDB flat market boost the sales figures for this sector?

 

 

Investors’ loss may be end-users’ gain

With headwinds brewing in the property market, many private property owners and investors have already been or may be seriously considering letting go of their properties, in particular high-value luxury ones at below market prices. Investors with strong financial backing and holding power may be more willing to sell below market value, as long as the offer is reasonable, as they may want to release the money for investment elsewhere and make higher returns with a quicker turnaround.

TurquoisePhoto: Turquoise condominium

Smaller investors however may find themselves having to put their property in auction, in particular those who have had to suffer a loss of income. The days of old may have seen them relying on their passive income from rental of properties to supplement their income, but as the rental market is rapidly weakening, this iron rice bowl may not be so solid after all. For property owners who are in a rush to sell, they may even find themselves doing so at a loss as they would have had to put in monies for legal fees, stamp duties and mortgage loan interests in the years following their purchase.

Last year alone saw 400 secondary market transactions making a loss, four times more than the 100 in 2014; and 31 of these non-landed properties made more than $1million loss, that is more than thrice the number in 2014. Most of these were in the luxury property segment, with units at the Seascape making the largest loss of $5.2 million in the resale market. Some of the other projects with units exchanging hands at below-market prices include St. Regis Residences, Turquoise and The Orchard Residences.