April 29, 2007

Collective sales lower supply; prime rents rising

While expats are finding it costlier to rent homes, landlords are benefiting from the supply crunch

By Joyce Teo, Property Correspondent

THE collective sale fever is taking so many prime properties off the market that rents are soaring and expatriates are being caught in the squeeze.

Rents in the coveted districts 9, 10 and 11 have rocketed in recent months, but the demand from expats has not slackened, partly because the booming economy is attracting more highly paid foreigners to Singapore.

Some expats have complained of the rising rents and difficulties in finding accommodation, but the trend shows no sign of easing, much to the delight of landlords.

'It's a supply crunch,' said CB Richard Ellis director (residential) Joseph Tan.

Apart from the supply squeeze from collective sale activity, increasing numbers of young, single expatriates are coming to Singapore and they are largely leasing one- and two-bedders.

'This aggravates the already limited supply of such apartments and may eventually lead to a shortage in the next few quarters,' said property consultancy Knight Frank in a report recently.

Monthly rents for non-landed residential properties in districts 9, 10 and 11 are around $2.95 per sq ft (psf) on average.

Rents for high-end homes in the same areas are at $5.12 psf a month on average, said property consultancy Savills Singapore.

The firm believes that collective sales and robust demand will keep the pressure on, driving up rents in districts 9, 10, 11, 15 and 16 by 4 per cent to 8 per cent in the next quarter.

Savills Singapore's Mr Ku Swee Yong said demand will also come from tenants displaced by collective sales and thrown back into the rental market.

Since the beginning of last year, more than $36 billion worth of collective sale deals have been done.

Just on Friday, the largest sale done en bloc - Leedon Heights in Holland Road was sold to GuocoLand for $835 million - was concluded, taking 314 units in district 10 off the market.

More than 45 properties in prime areas have been sold en bloc, with more to come.

Once these old developments are torn down, it will take up to four years for a new project to be up and ready for occupation.

One Asian expat living in a condominium that is undergoing a collective sale said he will have to move out before his lease is up, though he has not been offered compensation.

The situation bodes well for landlords of new prime apartments and existing homes in prime districts that are not earmarked for collective sale.

While it may take more than a year for tenants to vacate a building that is eventually sold en bloc, they do not want to move within the tenancy period, agents said. A typical lease is for two years.

Neither do they want to live with the burden of possibly having to do so, said Mr Tan.

'Because of the shortage, landlords are raising their rents,' he said.

A landlord with a two-bedder at Spring Grove in Grange Road signed a two-year lease with an expatriate last June for a monthly rent of $3,200.

However, rents in the 99-year leasehold block have soared by about 25 per cent to $4,000 since, he said.

Generally, as prime capital values are also rising fast, the average residential rental yields here are largely unchanged at 3 per cent to 4 per cent, said Mr Tan.

However, new properties typically enjoy a higher yield of about 10 per cent above the market norm, he added.

Meanwhile, higher rents for prime apartments have driven some tenants to rent flats further away from town, market watchers said, resulting in rents in the suburbs getting costlier as well.

Rents for apartments in districts 5, 21 and 23 in the west, for example, have risen by an average of 10 per cent quarter on quarter.

This means that a two- to three-bedroom apartment will cost at least $2,000 to $3,000 a month, said Savills Singapore.

[email protected]