Monday, 10 November, 2014 RESIDENTIAL MARKET Supply glut, tightening expat demand depressing rents The private residential leasing market has grown steadily weaker from the previous year in most districts of Singapore, with unpopular suburban locations the hardest hit. And no reprieve is in sight as latest Q3 figures show non-landed private home rentals sliding another 1.1 per cent from Q2, led by the core central region. From Q2 last year - when loan restrictions had not come into force - to Q2 this year, rents fell across all but seven of the 28 districts, with District 20 (Bishan, Ang Mo Kio) bucking the trend in a big way. Condos and apartments in District 27 (Yishun and Sembawang) suffered the steepest rent decline of 10.6 per cent. Rents stayed flat in prime District 11 (Watten Estate, Novena, Thomson), as well as District 7 (Middle Road, Golden Mile) and District 12 (Balestier, Toa Payoh, Serangoon). Three others saw single-digit increases. Only District 20 (Bishan, Ang Mo Kio) deviated with a whopping 15.9 per cent jump in rental prices. The number of rental transactions also shot up in Bishan and Ang Mo Kio by 138 per cent from 88 in Q2 last year, to 209 in Q2 this year. All things being equal, projects in mature housing estates could command higher rents, given their accessibility to public transport and other amenities, compared to newer and still-developing housing estates. This could explain why rents in the mature housing estates of Bishan and Ang Mo Kio saw double-digit growth, compared to rents in other housing estates such as Yishun and Sembawang. But other reasons could also affect the numbers, such as the rejuvenation of Bishan Park, or the completion of the superbly located Centro Residences in Q1. The many small and therefore investor-friendly units at Centro Residences with higher psf prices may also have skewed the estates median rents. The condo recorded 107 lease transactions in Q1 and Q2 alone. But new rental stock can cut both ways. When there is a supply glut with too many projects being completed around the same time, it could intensify competition for tenants. This was the case in Yishun and Sembawang, where more than 1,000 units were completed between 2013 and H1 2014. In contrast, no other major residential project was completed in District 20 between Q2 2013 and Q2 2014 besides the 329-unit Centro Residences. For the next six to 12 months, the slowing inflow of foreigners into Singapore and consequent shrinking tenant pool, contrasted against a growing supply of completed condo units, is expected to continue to depress rents, especially in the suburbs. Between H2 and 2015 alone, close to 30,000 units are expected to be completed, substantially greater than the past two years supply of 23,000 units. Of this, about 56 per cent will be in the suburban areas, and is thus likely to exert a further strain on rents as potential tenants will have greater bargaining power. The imminent supply glut could lead to a flight to quality, as some tenants will be able to move closer to the CBD for the same rental budget. The result is that the OCR (outside central region) residential landlords may get the short end of the stick. The reverse was true before the global financial crisis - demand for rental homes was high amid a tight supply. This was when corporations still defrayed much of expats housing and other allowances. Part of their generosity had to do with wanting to incentivise their employees to relocate to Asia. But such incentives became less relevant after the crisis, as economic refugees fled their recession-ravaged countries to Asian financial centres such as Singapore and Hong Kong that have weathered the crisis better. As banks and corporations kept a tighter rein on purse strings post-crisis, they also began to realise that expat packages were no longer required to draw foreigners here. So these packages slowly went away, save for a small minority in C-suite roles. Now, most expats are employed on local terms and simply given a lump-sum allowance to take care of their housing, transport, and childrens education. Meanwhile, Singapores continued tightening of foreign hiring is expected to further cut the number of tenants looking for a temporary home here. Source: The Business Times, 10 Nov 2014 Renting beats buying a home? It depends NEW research says it may be cheaper to rent than to buy a home in Singapore, if residential property prices here continue their current moribund trend. But does this necessarily mean homebuyers here are better off switching to this option? And is property now necessarily the best place to park ones cash? The rent-or-buy poser is oft-debated, even worldwide. In the United States, a study this year by Trulia found that home ownership is generally still 38 per cent cheaper than renting. Meanwhile, the Reserve Bank of Australia said it could become cheaper to rent instead, with home prices unlikely to keep growing at the rate they have over the past 60 years. In Singapore, home prices have fallen faster than rentals, since loan curbs (that is, the total debt servicing ratio, or TDSR) kicked in. A researcher has found that if prices stay flat, or appreciate anything less than 2 per cent over the next 4-5 years, renting could prove more cost-effective than buying a property. Using the example of a buyer purchasing a condominium unit for S$1.28 million in Upper Bukit Timah (District 21), it is assumed the buyer then sells the unit four years later - with four years being the minimum holding period to avoid paying seller stamp duties - at the same price. Taking S$1.28 million and subtracting the mortgage paid, remaining loan, and initial downpayment and other miscellaneous fees, he would have made a loss of S$149,000. On the other hand, if he had rented the same unit for a monthly S$2,800 for four years instead, he would have paid a total of S$134,000 in rental - less than the loss he would have made from selling his home. Buying this unit would still be more expensive than renting it, if home prices appreciate one per cent in 4-5 years time, her research shows. But, the tipping point comes when prices increase 2 per cent or more; then, buying becomes cheaper. So, does this mean homebuyers here should switch over to renting instead? Singapore, along with some other Asian countries, may be unique in that renting rarely comes across as an option for locals who can afford to buy - even if they bemoan the high cost. Their motivations go beyond mere profit-and-loss calculations, extending also to personal and psychological concerns - financial security or pride, for instance. After all, they do build up equity as they pay down a mortgage. Property prices also generally do appreciate in the long term, while rental money essentially goes nowhere, neither bringing one closer to owning a home nor yielding one any returns. It is merely helping your landlord to pay his monthly mortgage. Singapores housing policies are also more geared towards home ownership than leasing. Central Provident Fund (CPF) savings, for instance, are a powerful tool that helps locals to buy properties. CPF Ordinary Account savings can be used to pay for the downpayment as well as monthly loan instalments. Many people are unsure how best to make use of their CPF monies during the interim years, but if they invest in a flat or private property, they will be on a sure path to capital appreciation in the long term. As for deep-pocketed foreigners looking for a safe haven to park their cash, the absence of a capital gains tax in Singapore continues to provide them an incentive to buy. But beyond the rent-or-buy options, is there a third alternative investment for ones cash? Or, put another way, what is the opportunity cost of the equity or capital tied up in a home purchase here? Currently, home prices have outpaced equities. Private home prices have grown 6.1 per cent between post-crisis Q3 2009 and Q3 2014 on a compound annual growth rate basis - faster than the Straits Times Indexs growth of 4.2 per cent between September 2009 and September 2014. That said, the performance of the various asset classes can change a lot, year to year. From Q3 2013 to Q3 2014, private home prices fell 3.3 per cent. In contrast, even though the equity market has been sluggish in that same period, blue chips appreciated 1.23 per cent year-on-year as at end-October. Source: The Business Times, 10 Nov 2014 Lake Life EC in Jurong nearly sold out The 546-unit Lake Life, the first executive-condominium (EC) project in Jurong in 17 years, opened for bookings last Saturday and is already close to being completely sold out after the opening weekend. Evia Real Estate, the head of the projects consortium of developers, reported that 98 per cent - or 534 units - have been sold as of 5pm on Sunday. A total of 521 units were snapped up on Saturday alone. This gave Lake Life the distinction of having sold the most units on the first day of sales for both ECs and private condominiums in Singapore since June 2013, when the Total Debt Servicing Ratio framework was first introduced. We believe that the popularity of Lake Life can be attributed to its prime location, with Jurong set to become the next hottest address, as well as the condos first-of-its-kind active living concept, said Evias managing partner Vincent Ong, who had initially expected to sell about half the units during the weekend. Unit prices for the 99-year leasehold project in Yuan Ching Road range from S$799 to S$930 per square foot, a much broader range compared to the earlier indicative prices of S$880 to S$890 psf. The average price for a unit is S$685,000 for a two-bedroom, S$898,000 for a three-bedroom, and S$984,000 for a three-bedroom premium. Four-bedroom units go for an average price of S$1.07 million, and $1.088 million for a four-bedroom premium. Five-bedroom units cost an average of S$1.388 million. The next EC in Jurong - at Westwood Avenue near Nanyang Technological University - will be launched after the first quarter of 2015. Source: The Business Times, 10 Nov 2014
Posted on: Mon, 10 Nov 2014 16:44:30 +0000