November 1, 2009 Sunday

Landlords can stop ranting about rents

Rental decline easing and rates will stabilise or rise next year, say analysts

By Joyce Teo

Property investors worried about collecting less and less rental income may soon have cause to cheer, as property consultants expect rents to remain steady or even start rising from next year, albeit slightly and slowly.

The worst seems to be over, though the new condo completions coming up will keep rents from rising quickly or significantly, they say.

In the first nine months of the year, the Urban Redevelopment Authority's rental index fell by 15.2 per cent, reversing the 2 per cent positive growth last year. However, the pace of decline has slowed. The rental index saw a milder correction of 2.2 per cent in the third quarter, compared with declines of 8.5 per cent and 5.2 per cent in the first quarter and second quarter, respectively.

Property consultants say private home rents are stabilising, and that the high-end segment has stabilised.

Said Cushman & Wakefield managing director Donald Han: 'High-end private home rents have bottomed and should be on the way up, while the mass and mid-tier rental markets are in the process of bottoming.'

Already, rents of some good class bungalows have risen by about 5 per cent in the past three to four months, he disclosed.

The positive sentiment would eventually seep into the market for high-end apartments, he said. 'Some companies are starting to look at expansion again, so that's good news.'

It will mean an influx of expatriates.

'Companies have stopped cutting back like they did last year,' said Ms Jacqueline Wong, who heads Jones Lang LaSalle's residential business.

'The Singapore story is still good, and the two integrated resorts will soon be completed.'

Prime rents - which are still about 15 per cent to 20 per cent below the 2007 peak - have already stabilised. They are likely to remain steady going ahead, though a lot depends on how many new units come on the leasing market, she said.

New condos coming up in highly prized prime locations include Tate Residences in Claymore Road and Ardmore II in Ardmore Park. Some luxury condos may thus see some price pressure.

In determining the rent a development can command, its location, the layout of its units and its facilities are very important, said Savills' director of residential leasing, Mr Patrick Lai.

For instance, Ardmore Park apartments have regular, practical layouts and no odd-shaped rooms. The condominium itself has large grounds, which are very popular with families. Rents there have achieved near-peak levels of $6 per sq ft (psf).

There is also a growing leasing interest in newly completed homes in Sentosa Cove, Mr Lai added.

Still, rentals in newly built condos may start low if there are many competing units. Some owners would rather accept a lower rent than keep their units vacant for long.

Said Mr Lai: 'It all boils down to demand and supply. When new projects are completed, there will naturally be a lot of competition. So rents are flexible.'

In general, he said, the downward trend in rents should continue to ease and rents may even experience a moderate pick-up next year, barring any adverse economic developments.

Any pick-up would more likely be seen in high-end apartments.

Prime rents slipped in the third quarter to $4.67 psf, compared with $6.09 psf at the previous peak in the first quarter of last year.

[email protected]