Property 2006
Published March 30, 2006

Shrugging off the blues
An increase in expatriate population has helped the residential leasing market recover in '05, say KAREN ONG and YENNY BERLIANNA

HAVING shaken off the Sars episode in 2003, the residential leasing market has made a strong and steady recovery with leasing transactions hitting a six-year high in 2005.

Led by an increase in the expatriate population, the number of leasing transactions came to 33,874 last year, up 8 per cent from 2004. Landed properties and apartments in the prime districts of 9, 10 and 11 were the most sought after, accounting for nearly 34 per cent of the total leasing transactions. Companies have also been increasing their expatriate housing allowances. And with the profile of expatriates shifting from singles and couples to families, and from middle to senior management, there was greater demand for newer and larger units as well as detached houses in prime districts.

While the improving economy of the last two years has seen rents rising steadily, current levels are still reasonably affordable, compared with the 1996 peak. Based on our residential basket, rents for luxury units in prime districts rose 9.2 per cent in 2005. But there remains a sizeable rental gap between newer projects of under five years and older ones. The difference was 30-36 per cent in the last six quarters. Rental rates for developments in these areas generally vary between $2.50 per sq ft and $6 psf per month.

The URA rental index for residential properties island-wide rose 3 per cent in 2005, up from 0.2 per cent in 2004. Rental rates have improved for all housing types. But strong demand for landed properties, especially detached houses, led this segment to enjoy the highest growth in rental rates over the year. The rental index for detached houses rose 3.7 per cent against 3.1 per cent for non-landed properties.

Top choice

The luxury 330-unit Ardmore Park development location remains the top choice among tenants. However, those who signed leases about two years ago at $10,000 to $11,000 a month for the 2,855 sq ft units, would find it hard to renew them at the same rent. Demand for the units has seen a 15 per cent increment in asking rents in the last few months alone.

One new luxury development that should boost the supply in this segment is Cairnhill Crest whose rents are expected to range between $4.80 and $6.20 psf per month.

Leasing activity is expected to remain healthy in 2006. New leasing supply should remain tight over the year with only a limited number of new completions earmarked for lease.

This indicates that average rents could continue their uptrend in the next couple of years.

With banks raising home loan rates, owners may also feel the need to hike rents to make up for higher interest payments. But the rate of rental growth will vary with the attributes of each project.

With several new projects in the CBD area being built, such as The Sail @ Marina Bay and some conversions of office buildings to residential properties (1 Shenton Way, Natwest Building, HMC Building), we expect to see more expatriates relocating to the city in the next few years.

Karen Ong is head of residential leasing and Yenny Berlianna is senior analyst, Savills Singapore