Private property rental yields likely to fall: Analysts

SINGAPORE — Rental yields of private residences could take a further hit in the coming months as more foreigners opt to rent Housing and Development Board (HDB) flats and the number of condominium units on the market exceeds demand, property analysts told TODAY.

Yields are already showing signs of softening.

According to Singapore Real Estate Exchange (SRX) research conducted for TODAY, the average gross rental yield for the first 10 months of this year was around 3.8 per cent, lower than the 4.1 per cent in the same period last year. Rental volume in the private market has also taken a hit, falling for three consecutive months to 2,403 transactions in October.

On the other hand, demand for HDB flats is increasing. Official figures showed that the average quarterly rental volume this year has been around 7,600 transactions, higher than last year’s average of 6,780.

“Many expatriates today do not have a separate rental budget, so they will try to minimise their rental expenditure and go for an HDB instead of going private. If (their) budget is below S$3,000, it is very hard to find a unit in the private market that can fit a whole family,” said ERA Realty Network Key Executive Officer Eugene Lim.

Savills Head of Research and Consultancy Alan Cheong noted in a recent report that, across the island, the vacancy rate of private residential units climbed to 6.1 per cent in the third quarter, representing 17,459 vacant homes, up from the previous quarter’s 5.6 per cent, or 15,833 units.

He also highlighted that the pool of tenants is not expanding as quickly as the number of private residential projects receiving their temporary occupation permits. About 6,305 units are scheduled for completion between now and the end of the year, and another 19,302 homes are due to come into the market next year.

Businesses are also facing a tougher time hiring foreigners, who make up a large proportion of rental demand in the private residential market. That trend was highlighted earlier this month when Acting Manpower Minister Tan Chuan-Jin revealed in Parliament that about 2,600 Employment Passes (EPs) were not renewed in the first half of this year.

Even if foreigners can get the necessary pass, financial issues are helping to keep the private market soft.

“The cost of doing business in Singapore is pretty high … it has become more difficult to justify bringing in foreign talent and giving them a housing allowance. If they do bring in foreigners, they are mostly put on local terms now. Their budget has shrunk,” Mr Cheong said.

Agreeing, Mr Lim said: “It’s like a merry-go-round. When current leases expire, tenants are likely to look at new projects and owners of the new units will be fighting for them, so there will be a price war. Owners of older condominiums are prepared to give a discount to hold on to good tenants. You can say that it is becoming a tenant’s market.”

Analysts said this trend would likely continue as the government has made it more difficult for companies to file new EP applications.

But while the softening rental demand is something home buyers should factor in when making their next purchases, Mr Cheong said property investment can still be lucrative given the low interest-rate environment.

“More tenants may move to the HDB market but I think most Western expatriates would still prefer renting from the private market. Singapore may be a cosmopolitan city but living in HDB (flats) is a different experience,” he said.

“(Demand may be) softer across the board but shoeboxes are still generating more than 4 per cent yield, and overall there’s still a positive yield spread, so it still makes for good investment so long as interest rates remain low and do not spike,” Mr Cheong added.