Rents in affluent areas suffer from outward migration

As the housing market moves into the peak rental season, the Core Central Region (CCR) continues to struggle to regain the rents it commanded before the global financial crisis.

According to the Singapore Real Estate Exchange’s (SRX) Rental Price Index for non-landed private homes, rents in the CCR are now down 1.9 per cent from their pre-crisis peak. The CCR consists of the city centre including high-end areas such as Orchard, River Valley, Bukit Timah, Holland Road, Harbourfront and Sentosa Cove. In contrast, rents in the Rest of Central Region (RCR), or city fringes, and the Outside Core Region (OCR), or suburbs, have exceeded their pre-crisis price peaks by more than 8 per cent.

While demand during the peak rental months of May, July and August will place upward pressure on rentals, data from the SRX suggests that the CCR’s underperformance is part of a rebalancing of rental prices among the three regions. Tenants are clearly moving away from the CCR in search of more affordable housing, dampening rental prices in the region while driving them up in the other regions.

Two primary factors have conspired to weaken rental prices in the CCR. First, the expansion of MRT lines has allowed condominiums in the RCR and the OCR to capture those renters who were reluctantly paying more for the convenience of living in the CCR. Now, renters can choose from more condominiums with easy MRT access to downtown and other points of interest. Yes, their commute might increase by a few MRT stations, but the savings in rent more than offset that small inconvenience.

Second, the global financial crisis has shrunk the rental budget of tenants, causing them to seek more affordable homes further away from the CCR. As a result of the crisis, families tightened their budgets and corporations reduced or eliminated rich housing packages. Many families decided it made more financial sense to live outside the CCR, closer to schools, and let the breadwinner do the long commute.

How long will this trend of migration out of the CCR continue? It will continue as long as people believe they are getting more value for money. For example, prior to the global financial crisis, a family saved 27.8 per cent in rent by living in the RCR instead of the CCR. Today, that family saves 17 per cent. The rental savings of the OCR over the CCR was 43.2 per cent in 2008, while it is 37.9 per cent today.

As expected, the savings are coming down as demand from migration drives RCR and OCR prices up and those in CCR down. At some point, if supply were to remain constant, the migration will slow as savings become less attractive for the renter to move out of the CCR.

However, it is difficult to imagine that this reshuffling of the real estate market will not last for some time. Today’s significant rent savings and the expanded infrastructure of the MRT make it much easier and faster to migrate out of the CCR.

ABOUT THE AUTHOR:

Sam Baker is co-founder of SRX, an information consortium formed by leading real estate agencies in Singapore to share proprietary sales and rental data and facilitate property transactions. For more details on the trends and figures discussed in this article, visit the research page of www.srx.com.sg.