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13-03-14, 13:54
http://www.straitstimes.com/archive/sunday/premium/invest/story/how-attract-tenants-tough-market-20140309
How to attract tenants in a tough market
Landlords can lower rents, spruce up units and provide new home appliances
Published on Mar 09, 2014
By Cheryl Ong
Cut the rent to cut your losses
Renting out a flat has long been seen as a good way to bring in some extra income, but the chill winds blowing through the property market are forcing a painful rethink.
Landlords, including prospective ones, are getting the jitters as new units flood the market amid tighter manpower policies that are slowing the growth of arrivals.
The raw figures underscore the point: Private home rents fell 0.5 per cent in the three months to Dec 31, from a 0.2 per cent gain in the preceding quarter.
This was the first quarterly decline since 2009, according to Urban Redevelopment Authority (URA) data.
Rents were up 0.9 per cent overall last year from 2012 - an anaemic figure compared with the 2.1 per cent gain recorded in 2012 from 2011.
Mr Ku Swee Yong, chief executive of property firm Century 21, expects the market to stay weak for the next four years, with rents dipping 25 per cent over the next two years.
A potential oversupply looms in the background, with a total of 17,540 private homes expected to reach completion this year, while a further 21,299 will be ready for occupation next year.
This will peak in 2016 with a remarkable 27,321 completions, and another 11,963 expected to be built in 2017.
Experts say this flood of new homes means landlords should expect the weak rental market to persist in the face of strong leasing competition.
The Sunday Times looks at what landlords should watch out for in this increasingly challenging environment.
It's a tenants' market
There's an army of eager landlords out there, so tenants have more bargaining power now, say agents.
"It's quite common to have tenants asking for more nowadays," says Ms Shirley Ong, vice-president of property firm Centaline Singapore.
"It definitely takes more time to find tenants because in this market, the tenants are spoilt for choice."
Mr Steven Tan, managing director of property firm OrangeTee, says it used to take one to two months to rent out a unit, but two to three months is the norm now.
He noted that suburban properties were the worst hit as rents there fell 0.8 per cent in the three months to Dec 31.
City-centre private homes were next, down 0.5 per cent, while city-fringe units fell by 0.1 per cent.
"The outlying areas have a greater softening compared with the other two areas because many new launches have reached completion," says PropNex chief executive Mohamed Ismail.
However, the main considerations tenants have when searching for a home remain unchanged.
Mr Tan notes that they are most sensitive to asking prices, and the location, age and condition of the property also feature high on their list.
Some tenants factor in the facilities available at condominiums.
If you have a new unit
Many homeowners make the mistake of having unrealistic expectations without a good understanding of the market.
"Rental rates have been falling since January," says realtor Jason Ho. "Depending on the situation, we'll advise landlords to cut losses and explain (to them) the increasing supply of units."
Experts say online property portals make it easy for landlords to check what others are asking for.
Calling an agent for an indication is another option.
It is also common to find many units within a newly completed development up for rent at the same time, so tenants become especially price-sensitive.
Mr Ismail says: "By keeping your price, you're losing out because potential tenants will likely see all the units there.
"The owner who is asking for more could actually be helping the others with cheaper units clinch the deal, since they are in the same location."
Experts tell landlords that adjusting their expectations will help cut any losses.
Take an owner who eventually rents out his unit for $4,000 after two months. That translates to a loss of $8,000 - or about $300 a month - if the tenant signs a two-year lease.
It would have been more prudent to have asked for $3,700 earlier, says Mr Ismail.
Because tenants have more choices, they demand more from landlords, says property agent Mex Zhang.
"They might ask for better furnishings in addition to lower rent. They are becoming more picky."
So owners should ensure they provide basic and proper furnishings and appliances, like beds, TV sets, curtains and sofas.
Ms Ewa Cyman, 36, a sales manager, rented a condo unit for $400 below the asking rent.
She tells The Sunday Times: "Some condos that I've seen offer refrigerators that are barely working or sofas with a missing leg."
To beat others in the race, landlords could throw in sweeteners like free servicing for air-conditioners or even spruce up the house with plants, experts add.
Temper expectations
Landlords who have enjoyed better times should also adjust their expectations.
After all, they could be competing with newly built units nearby that are in better shape, advise consultants.
"Sometimes, a landlord feels that he rented out his property two years ago at $4,000, and now wants to renew the tenancy at 5 per cent more because his commitments have gone up, or interest rates have risen," says Mr Ismail.
Owners with leases due for renewal should start negotiations with tenants six months before the lease expires instead of the usual two months, he adds.
He advises: "Let them know you are prepared to renew the tenancy and see what other requests they have in mind."
Ms Ong says: "Landlords should also seek to cultivate a good relationship with their tenant and agent because tenants are more willing to stay if they know the agent and landlord are people they can trust."
But Mr Ismail warns that negotiations between owner and tenant can get emotional.
It might be better for the landlord and tenant's agent to personally handle the communication instead of through representatives.
Mr Zhang adds: "If tenants have a good profile and pay their rent on time, owners should treat them well."
The commissions payable to realtors for renewing a lease are, after all, lower at 0.5 per cent of the monthly rent, compared with 1 per cent for a new tenancy, experts note.
Time for facelift
Mr Tan suggests that owners can attract tenants by replacing old furniture and faulty appliances, spring-cleaning and giving the house a fresh coat of paint.
"Spend a little money. If it's a family, the kitchen is very important to the wife. If your cooker hob has been used for the past two years, replace it with a new one. If the TV is outdated, get a new one," adds Mr Ismail.
"A tenant is not buying for capital appreciation; he is renting for comfort."
Mr Ku suggests that owners should even consider renovating the bathrooms: "Sometimes, if your property is more than 15 years old, tearing out the sink and bathtub and toilet bowls could be a viable option.
"These things are a bit more personal to users who are particular about hygiene."
Don't sell yet
With property prices losing steam, experts say that selling is hardly a viable option now, even for hard-pressed owners.
"If you don't have a problem footing the monthly mortgage payments, just hold on to it because you're not likely to get a good price and it's difficult to buy again," says Mr Ku.
The onslaught of seven rounds of cooling measures and a tighter financing framework have caused buyers to shy away from the market, and sellers will have to lower their asking prices to move units.
Even if successful, sellers should be mindful that they face the Additional Buyer's Stamp Duty if they buy another property down the road.
Other options besides selling include renting out the unit for a shorter lease of at least six months.
This would appeal to tenants who are looking for temporary housing while their permanent home undergoes renovation, says Mr Tan.
But not all is doom and gloom in the rental market, he adds.
URA plans to develop regional centres in the suburbs, which means there will be decentralisation of commercial activity.
"Rents in the suburbs might find support as more jobs are created in the non-central regions, if external economic conditions remain unchanged," he says.
[email protected]
Additional reporting by Audrey Kang
How to attract tenants in a tough market
Landlords can lower rents, spruce up units and provide new home appliances
Published on Mar 09, 2014
By Cheryl Ong
Cut the rent to cut your losses
Renting out a flat has long been seen as a good way to bring in some extra income, but the chill winds blowing through the property market are forcing a painful rethink.
Landlords, including prospective ones, are getting the jitters as new units flood the market amid tighter manpower policies that are slowing the growth of arrivals.
The raw figures underscore the point: Private home rents fell 0.5 per cent in the three months to Dec 31, from a 0.2 per cent gain in the preceding quarter.
This was the first quarterly decline since 2009, according to Urban Redevelopment Authority (URA) data.
Rents were up 0.9 per cent overall last year from 2012 - an anaemic figure compared with the 2.1 per cent gain recorded in 2012 from 2011.
Mr Ku Swee Yong, chief executive of property firm Century 21, expects the market to stay weak for the next four years, with rents dipping 25 per cent over the next two years.
A potential oversupply looms in the background, with a total of 17,540 private homes expected to reach completion this year, while a further 21,299 will be ready for occupation next year.
This will peak in 2016 with a remarkable 27,321 completions, and another 11,963 expected to be built in 2017.
Experts say this flood of new homes means landlords should expect the weak rental market to persist in the face of strong leasing competition.
The Sunday Times looks at what landlords should watch out for in this increasingly challenging environment.
It's a tenants' market
There's an army of eager landlords out there, so tenants have more bargaining power now, say agents.
"It's quite common to have tenants asking for more nowadays," says Ms Shirley Ong, vice-president of property firm Centaline Singapore.
"It definitely takes more time to find tenants because in this market, the tenants are spoilt for choice."
Mr Steven Tan, managing director of property firm OrangeTee, says it used to take one to two months to rent out a unit, but two to three months is the norm now.
He noted that suburban properties were the worst hit as rents there fell 0.8 per cent in the three months to Dec 31.
City-centre private homes were next, down 0.5 per cent, while city-fringe units fell by 0.1 per cent.
"The outlying areas have a greater softening compared with the other two areas because many new launches have reached completion," says PropNex chief executive Mohamed Ismail.
However, the main considerations tenants have when searching for a home remain unchanged.
Mr Tan notes that they are most sensitive to asking prices, and the location, age and condition of the property also feature high on their list.
Some tenants factor in the facilities available at condominiums.
If you have a new unit
Many homeowners make the mistake of having unrealistic expectations without a good understanding of the market.
"Rental rates have been falling since January," says realtor Jason Ho. "Depending on the situation, we'll advise landlords to cut losses and explain (to them) the increasing supply of units."
Experts say online property portals make it easy for landlords to check what others are asking for.
Calling an agent for an indication is another option.
It is also common to find many units within a newly completed development up for rent at the same time, so tenants become especially price-sensitive.
Mr Ismail says: "By keeping your price, you're losing out because potential tenants will likely see all the units there.
"The owner who is asking for more could actually be helping the others with cheaper units clinch the deal, since they are in the same location."
Experts tell landlords that adjusting their expectations will help cut any losses.
Take an owner who eventually rents out his unit for $4,000 after two months. That translates to a loss of $8,000 - or about $300 a month - if the tenant signs a two-year lease.
It would have been more prudent to have asked for $3,700 earlier, says Mr Ismail.
Because tenants have more choices, they demand more from landlords, says property agent Mex Zhang.
"They might ask for better furnishings in addition to lower rent. They are becoming more picky."
So owners should ensure they provide basic and proper furnishings and appliances, like beds, TV sets, curtains and sofas.
Ms Ewa Cyman, 36, a sales manager, rented a condo unit for $400 below the asking rent.
She tells The Sunday Times: "Some condos that I've seen offer refrigerators that are barely working or sofas with a missing leg."
To beat others in the race, landlords could throw in sweeteners like free servicing for air-conditioners or even spruce up the house with plants, experts add.
Temper expectations
Landlords who have enjoyed better times should also adjust their expectations.
After all, they could be competing with newly built units nearby that are in better shape, advise consultants.
"Sometimes, a landlord feels that he rented out his property two years ago at $4,000, and now wants to renew the tenancy at 5 per cent more because his commitments have gone up, or interest rates have risen," says Mr Ismail.
Owners with leases due for renewal should start negotiations with tenants six months before the lease expires instead of the usual two months, he adds.
He advises: "Let them know you are prepared to renew the tenancy and see what other requests they have in mind."
Ms Ong says: "Landlords should also seek to cultivate a good relationship with their tenant and agent because tenants are more willing to stay if they know the agent and landlord are people they can trust."
But Mr Ismail warns that negotiations between owner and tenant can get emotional.
It might be better for the landlord and tenant's agent to personally handle the communication instead of through representatives.
Mr Zhang adds: "If tenants have a good profile and pay their rent on time, owners should treat them well."
The commissions payable to realtors for renewing a lease are, after all, lower at 0.5 per cent of the monthly rent, compared with 1 per cent for a new tenancy, experts note.
Time for facelift
Mr Tan suggests that owners can attract tenants by replacing old furniture and faulty appliances, spring-cleaning and giving the house a fresh coat of paint.
"Spend a little money. If it's a family, the kitchen is very important to the wife. If your cooker hob has been used for the past two years, replace it with a new one. If the TV is outdated, get a new one," adds Mr Ismail.
"A tenant is not buying for capital appreciation; he is renting for comfort."
Mr Ku suggests that owners should even consider renovating the bathrooms: "Sometimes, if your property is more than 15 years old, tearing out the sink and bathtub and toilet bowls could be a viable option.
"These things are a bit more personal to users who are particular about hygiene."
Don't sell yet
With property prices losing steam, experts say that selling is hardly a viable option now, even for hard-pressed owners.
"If you don't have a problem footing the monthly mortgage payments, just hold on to it because you're not likely to get a good price and it's difficult to buy again," says Mr Ku.
The onslaught of seven rounds of cooling measures and a tighter financing framework have caused buyers to shy away from the market, and sellers will have to lower their asking prices to move units.
Even if successful, sellers should be mindful that they face the Additional Buyer's Stamp Duty if they buy another property down the road.
Other options besides selling include renting out the unit for a shorter lease of at least six months.
This would appeal to tenants who are looking for temporary housing while their permanent home undergoes renovation, says Mr Tan.
But not all is doom and gloom in the rental market, he adds.
URA plans to develop regional centres in the suburbs, which means there will be decentralisation of commercial activity.
"Rents in the suburbs might find support as more jobs are created in the non-central regions, if external economic conditions remain unchanged," he says.
[email protected]
Additional reporting by Audrey Kang