Another year of pain for tenants

Higher property taxes and interest rates are likely to contribute to more increases in rents in 2023

Feb 24, 2023

Lee Sze Teck and Mark Yip

RENTS of non-landed private residential properties are expected to increase by another 10-15 per cent in 2023 on the back of more new completions.

This flies in the face of logic. More supply and higher rents hardly go hand-in-hand. But maybe not in 2023.

The Urban Redevelopment Authority (URA) rental index of non-landed properties jumped by 29.7 per cent in 2022, building on the 9.9 per cent growth in 2021. The six drivers of the non-landed private residential rental market in 2022 were: active hiring by companies, tight supply of homes for rent, hybrid work, return of foreign students, rising interest rates and co-living operators.

Companies were actively hiring in 2022 partly to backfill positions and to fill newly created roles. During the pandemic years over 2020 and 2021, non-resident employment contracted by 211,500. Rental demand was surprisingly resilient probably due to government support. The number of occupied homes contracted by only 3,436 units in 2020.

According to the Ministry of Manpower (MOM) Labour Market Advance Release 2022, non-resident employment was approaching 2019’s level. This meant that companies had employed back almost all the 211,500 non-resident workers. This led to a sudden surge in rental demand. The number of occupied homes jumped by 10,416 units in 2022, pushing occupancy rate back to the pre-pandemic year’s 94.5 per cent.

The construction industry is gradually recovering to pre-pandemic levels. In 2022, 9,033 private homes were completed, 46.8 per cent higher than in 2021. However, of the 9,033 private homes completed, only an estimated 14.5 per cent or 1,306 units were rented out. Competition for rental homes was stiff and tenants were forced to bid aggressively for a place to stay.

The hybrid work arrangements which became prevalent during the pandemic remained even after the government allowed workers to return to the office 100 per cent of the time. Many workers continued to rent their own place to have a conducive working environment, thus contributing to demand.

The work-from-home trend meant that a centrally located home in/near the Central Business District became less crucial to tenants, and they could move to the Rest of Central Region (RCR) or Outside Central Region (OCR). Rents of homes in the RCR and OCR gained more than homes in the Core Central Region (CCR) in 2022.

There was an increase in the number of foreign students to Singapore following the relaxation of border controls in April 2022. Some of the foreign students rushed to secure housing before their new school term started in the second half of the year.

Rising interest rates in 2022 meant that landlords had to raise rents to cover the higher monthly mortgage instalments. This is one of the many factors that pushed up rents in 2022 and the tight rental market was supportive of the increase.

The strong recovery in rental demand attracted many co-living operators keen to ride this wave. They were bulk renting from landlords to reposition the units as co-living space and subletting them out.

Based on caveats lodged, there were 91,843 rental contracts in 2022, 8.5 per cent lower than in 2021. Possible reasons may be the displacement of tenants to the HDB market and more tenants moving to co-living spaces.

Some of the more popular projects among tenants in 2022 are listed in Table 1. These popular projects have seen increases in rents ranging from 10.8-26.2 per cent in 2022. It is worth noting that the newer projects saw higher rents than the older projects in the same vicinity. This could be due to better facilities and amenities in newer projects and tenants are willing to pay more to enjoy them.

For example, the average monthly rent for a two-bedroom unit at the five-year-old integrated mixed-use development Marina One Residences was S$7,156 in 2022, 26.9 per cent higher than the 14-year-old The Sail @ Marina Bay. Over in the Queenstown area, the newly completed Stirling Residences fetched an average monthly rent of S$5,563 for a two-bedroom unit, 36.9 per cent higher than the five-year-old Commonwealth Towers.



Key trends

In 2023, some changes are afoot in the rental market which landlords and tenants need to be aware of. The key trends to watch are the upcoming private residential homes being completed in 2023, interest rate movements, increase in property tax, influx of businesses from China and slower economic conditions.

According to the Urban Redevelopment Authority (URA), there are an estimated 17,427 private residential homes scheduled for completion in 2023, of which 75 per cent are estimated to be in the RCR and OCR. Homes in the RCR and OCR are usually owner-occupied and not for rent. Hence, there may not be a sharp jump in the supply of homes for rent. Furthermore, new homes usually achieve a higher rent compared to older homes.

Table 2 shows a comparison of two-bedroom average monthly rents in newly completed projects and older projects in the vicinity. It appears that newly completed projects are able to achieve higher rents than the older projects. The difference can be as narrow as 4.9 per cent to as high as 55.9 per cent.



The US Federal Reserve increased its benchmark interest rate by 25 basis points on Feb 1 and indicated that there may be more rate increases in 2023 to bring inflation down. Landlords are likely to face higher borrowing costs in 2023 and may factor them in for the next contract renewal.

Property tax on non-owner occupied residential properties will be adjusted upwards in 2023 and 2024. Based on the Inland Revenue Authority’s calculations, a non-owner occupied residential home with an annual value of S$45,000 will attract a property tax of S$4,800 in 2022. This will increase to S$5,700 in 2023 and further go up to S$6,600 in 2024. This means that landlords will have to fork out an additional S$1,800 in property tax or S$150 per month by 2024. This extra S$150 may be factored into the next lease renewal.

The slower economic conditions in 2023 are likely to slow down hiring in some sectors of the economy and that may reduce rental demand. However, with the opening up of China, there may be an influx of businesses from there looking to set up operations in Singapore to expand in the region, and that may push up rental demand.

On balance, rental demand in 2023 is estimated to be positive. While there may be a large number of completed homes in 2023, this may only moderate the amount of rent increases as new homes usually achieve a higher rent compared to older homes. Property taxes and interest rates are likely to contribute to more increases in rents in 2023.

In conclusion, rents are usually sticky and it will take more than just an increase in supply for them to go down.

Lee Sze Teck is senior director of research; Mark Yip is chief executive officer at Huttons Asia.