More home buyers choosing to rent while waiting for prices to slide

SINGAPORE — When Mr K Amrit and his wife decided to upgrade from a Housing and Development Board (HDB) flat to a private home, they noticed property prices were falling and decided to sell their unit in Bedok late last year before its value dipped further.

“We were lucky. We sold it with COV (cash-over-valuation) of S$30,000. Right after that the COVs kept going down. Then we also heard from our agent and friends that prices could fall some more, so we thought we’d take our time with the house-hunting and in the meantime, we’re renting an apartment,” the engineer, who is in his 30s, told TODAY.

Mr Amrit has not yet found a new home, but is actively viewing potential units and visiting showrooms with his wife. The couple signed a one-year lease last December on a two-bedroom apartment in the east at about S$4,000 a month, willing to cough up that rental, confident that home values would fall enough to justify their decision.

They are among the many prospective home buyers who are staying on the sidelines while waiting for private residential prices to ease further before entering the market, which has in turn led to an increase in home rental volumes.

In the first eight months of this year, close to 38,000 non-landed private residential leases were signed, data from the Urban Redevelopment Authority (URA) and property firm HSR Research showed. This is higher than the 35,000 rental contracts secured in the corresponding period last year and the 34,000 two years ago.

Cashing out on the previous home and biding their time before buying another makes sense in the current property market environment, analysts told TODAY. The arrangement allows these prospective buyers to maximise profits from the sale of their homes in a weakening market while taking advantage of the softening rents resulting from an increase in supply of completed homes.

Prices of private homes decreased by 1 per cent in the second quarter, the third straight quarter of falling values, following the 1.3 per cent and 0.9 per cent declines in the two previous quarters, URA data showed.

“We have noticed that many people are choosing to rent first and hoping that prices will come down later on. They sell off their properties and rent before getting their next home. We are also seeing people signing shorter leases because they are hoping for rents to come down,” said Mr Chris Koh, director of property firm Chris International.

Even among those who have already bought new homes, many opted to sell their existing homes amid fears that prices would fall further if they delayed the sale, choosing to rent while waiting for the completion of their units, HSR research analyst Wong Shanting noted, describing a trend that has taken root in the past few years.

However, the jump in rental volume has not translated into better income for landlords.

Rents for private non-landed homes have declined for three straight quarters, with the URA rental index falling by 1.1 per cent over this period to a median of S$3.79 psf per month by the second quarter this year. But yields have held steady as the prices of both new and resale private homes have also fallen.

Among the different geographical regions, Ms Wong noted that the rental market in the Core Central Region (CCR) has not held up as well as in the Rest of Central Region (RCR) and Outside Central Region (OCR).

“Traditionally, the RCR and OCR cater to local families while the CCR generally has a higher percentage of expatriates. In the last few years, in view of less attractive employment packages offered to expats, we see these tenants increasingly moving outwards because of lower rents in those areas. This could explain the falling rental yields in CCR,” she said.

With more than 20,000 non-landed private homes expected to be completed in each of the next two years, yields are expected to be further compressed. Vacancy rates of non-landed private homes have already been rising for five straight quarters to 8.3 per cent in the second quarter of this year.

“What we are facing now is oversupply that’s going to put a toll on the market because tenants will be spoilt for choice. I think that the rental market will remain strong volume-wise because people can’t buy or they choose to rent first before buying, but yields will not go up,” said Mr Koh.