Published August 2, 2008

Private home rents may wobble but won't crash

Fears of their decline next year may be somewhat exaggerated


(SINGAPORE) Recent media reports predicting that private home rents will take a steep dive next year are certainly alarming. But a closer look at the numbers suggests that they may not take such a beating after all.

Last week, CB Richard Ellis (CBRE) said that it expects rents to fall by 5-10 per cent on average next year. In the prime areas, rents could slide by up to 15 per cent, the property firm said.

The projections are based on two major assumptions: that a record number of homes will be completed next year; and that the tenant pool here will shrink significantly as corporations stop hiring expatriates or, in some cases, even send some expats home.

'It's a double blow,' said CBRE Research.

However, developers and other analysts say that the number of completed homes may not be that high and the economic situation next year not that bad.

According to CBRE's data, 13,400 homes will be completed next year. But official estimates from the Urban Redevelopment Authority (URA) put the number of landed and non-landed private homes expected to be completed in 2009 at a more modest 10,418.

Likewise, CapitaLand's in-house estimates say that about 12,000 units will be completed from the second half of 2008 to end-2009.

'It is a comfortable number,' Patricia Chia, head of CapitaLand's Singapore residential unit, told reporters at the developer's second-quarter results briefing yesterday. Over the past six years, 8,000-8,500 private homes were completed on average each year, she said.

There are also demolitions to consider. CBRE said there will be 1,700-1,850 units demolished in 2009. Net supply next year could therefore come in even lower.

Take, for example, Q2 2008 numbers. According to Citigroup, while 2,587 units were completed in the second quarter, net supply was only 761 - implying that some 1,826 units were demolished. This partly helped occupancy rebound slightly to 93.9 per cent following three consecutive quarters of decline, the bank said in a recent report.

Rentals will also be helped by other factors, developers point out. Many of the new units coming onstream in 2009 and 2010 have already been sold, and not all of them will end up on the rental market.

The HDB market, where prices rose 4.5 per cent quarter-on-quarter in Q2, is also cause for optimism. The number of HDB resale applications also rose 22 per cent quarter-on-quarter.

'HDB upgraders who buy mass market private units will not rent out their new homes,' said one developer. 'Many of the units in new mass market condos completed in 2009 and 2010 will not be part of the supply for renters.'

For now, while rental growth is slowing down, it is still on the uptrend. Citigroup said that rentals rose 2.5 per cent quarter-on- quarter in Q2 - much slower than the 6 per cent increase seen in the first quarter.

But the other, bigger factor which could also lead to rents taking a precipitous plunge next year - the state of the macroeconomic environment - is still up in the air.

CBRE, for example, adopted scenarios in which the economic climate either stays the same or worsens in 2009 to arrive at its forecasts.

Other analysts, on the other hand, expect things to turn around in the second half of 2009.

For now, jobs growth is continuing apace, they point out. 70,600 new jobs were created in the second quarter, down only slightly from a record 73,200 jobs in Q1 and the second highest job creation rate on record.

The slowdown in services jobs creation to 37,600, from a record 46,500 jobs in Q1, was however a cause for concern. 'We suspect much of this may have reflected a slowdown in financial services hiring,' said Citigroup economist Kit Wei Zheng.

But while firms in the financial sector may hold off on hiring, companies in other industries should continue hiring next year. The overall pool of renters should therefore continue to climb in 2009.

'There should be enough people looking to rent in the next 12-18 months,' said Ku Swee Yong, director of marketing and business development at Savills Singapore.

Growth in mass market and HDB rents should continue next year, he said. But asking rents at large high-end apartments - of 4,000 sq ft and more - could fall as companies cut back on housing allowances for their employees, Mr Ku added.

As for overall rents, it's anybody's guess. Much depends on how quickly the world recovers from the US sub-prime mortgage crisis - or how much worse things get. But private home rentals here are unlikely to make a large reversal.