Rental market is beginning to rise as supply demand dynamics improve, said a residential leasing briefing by Savills Singapore. It noted that the private residential leasing market had another buoyant quarter with 20,251 leases registered islandwide in the first quarter of 2018, which is 6.9 per cent higher than a quarter ago.
“For the rise in transaction volumes, other than seasonal and technical factors (the increase in the number of shorter lease terms, for example), we can attribute the change to factors such as increasing demand from owners and tenants who have been displaced from private residential projects that were successfully sold through collective sales in the last two years.
Broken down by housing subtypes, leasing deals for island-wide landed houses increased by 3.7% QoQ, while leasing transactions of condominiums and private apartments posted a higher growth of 7.1% QoQ, supported by board based increases in all the market segments – up 5.3% in the Core Central Region (CCR), 10.3% in the Rest of Central Region (RCR), and 5.9% in the Outside Central Region (OCR).”
The report noted that co-living space (a business model of shared urban residences typically involving furnished apartments with communal kitchens and common spaces and an emphasis on amenities and community) has emerged in Singapore.
“Co-living has become attractive to young professionals, especially for millennials, due to its affordability, flexibility and convenience. Hmlet, a co-living company established in 2016, is operating about 50 apartments in locations such as Shenton Way, River Valley and Joo Chiat. It just announced the launch of its second co-living station in Newton, an entire 30,000 sq ft condominium block called Hmlet @ Sarkies.
Separately, Chinese company Mamahome also launched its first co-living space, a 926-sq ft apartment at Alex Residences in Redhill, by offering rooms for rent on behalf of homeowners. It was reported that Mamahome plans to expand by another five to 10 units at Alex Residences and to hit 300 bedrooms by the end of 2018.”
It added that the Urban Redevelopment Authority’s (URA) rental index for overall private residential properties reversed course in quarter 1 of 2018 to notch a small increase of 0.3 per cent quarter-on-quarter (QoQ). This was the first quarterly growth in the last four and a half years since Q4/2013 and was supported by the non-landed private residential properties in the CCR and OCR, which inched up by 0.6 per cent and 0.7 per cent QoQ respectively.
The briefing noted that while rents for landed houses island-wide remained unchanged, rents for non-landed units in the Rest of Central Region (RCR) dipped by 0.3 per cent QoQ.
“According to data from the URA, the top five projects with the highest leasing deals signed in Q1/2018 were Sims Urban Oasis at Sims Drive, Duo Residences at Fraser Street, The Sail @ Marina Bay, Watertown at Punggol Central and Hillion Residences at Jelebu Road. Except for The Sail @ Marina Bay, the above mentioned projects were completed between Q2/2017 and Q4/2017.”
It own data of high-end non-landed private residential units suggested that rents posted a marginal increase of 0.6 per cent QoQ in quarter 1 of 2018, this after two successive quarters of decreases, said Savills. The report said that the stock of completed private residential units will continue to rise in quarter 1 of 2018, albeit at a slower rate of 0.4 per cent QoQ to a total of 365,591 units.
“As of end March 2018, the overall vacancy rate of private residential units fell by 0.4 of a ppt over the previous quarter. Together with a 0.6% decline in Q4/2017, the vacancy rate has improved by 1.0 ppt to 7.4% over a six-month period. There were a total of 26,906 vacant private homes island-wide, a decrease of 3,230 from the recent peak in Q3/2017.
In individual sectors, private residential unit vacancy in both the RCR and OCR dropped, down by 0.2 of a ppt and 1.0 ppt, respectively, while the rate in the CCR rose by 0.4 of a ppt. On the supply side, limited new completions in the reviewed quarter are partly the cause for the improved occupancy in the RCR and OCR.”
The report recorded that as f end March 2018, the overall vacancy rate of private residential units fell by 0.4 of a percentage point (ppt) against three months ago. This it said was partly due to limited new completions in the reviewed quarter.
The briefing added that given the rabid collective sales market, the situation where simultaneously, supply is reduced and replacement housing is created, may cause rents to rise 2 per cent to 3 per cent year-on-year (YoY) by end-2018.
“The collective sales process has done wonders to turn around the rental market by increasing demand and reducing supply,” said Alan Cheong of Savills Research.
In its previous leasing brief, Savills said that it believed that it may still take a few more quarters before the rental market shows any convincing signs of recovery. While it still holds that general view, Savills said that recent
evidence on the ground suggests, that the inflexion point for rents across all segments (Core Central Region (CCR), Rest of Cenral Region (RCR) and Outside Central Region (OCR)) may be coming sooner than expected.
The briefing noted that the supercharged collective sales market and its effect on the rental market. It said that that the en bloc sales environment is not showing signs of ending, and that since 2016, over 7,000 units have been or will soon be displaced once the existing developments on the site are demolished.
“The rush by affected owner-occupiers and tenants to find replacement abodes has been, in our view, the main reason for the recent boost to leasing demand. The beauty of the collective sales mechanism is that it also depresses supply up to the medium term, starting from the time when the developer takes over the project for redevelopment to the completion of the new build some four years later.
This creates a situation where, until the new developments are completed on the collective sales sites, there is simultaneously an upward and downward shift in the aggregate demand and supply curve for housing. This creates the conditions for rents to rise.”
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