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Landlords Face Reality as Rental Prices Plateau and Viewings Decline

Updated: Apr 6, 2023

Singapore Public Housing Apartments in Punggol District

Tenants who have faced increasing rents for the last two years are finally seeing some relief. While the rental market remains healthy, there are fewer viewings being reported by agents on the ground, and it is taking a longer time to secure tenants. However, some landlords are having trouble accepting that the market is moderating.

According to Cyril Tuzemen, director of boutique real estate agency Vesper Homes, it is necessary to have multiple rounds of viewings to close a unit this year because prices asked are high, leaving units on the market for a couple of weeks. Convincing long-term tenants to absorb such prices is harder than new arrivals. "Slowly, the market is understanding that we may have reached the peak," he said.

Going by another name, agent Natalie Tan, has observed that during last year's crazy rental market, she could do five to ten viewings back-to-back for any listing. But now, for one good listing, she only does three to four viewings. Demand was so strong last year that agents would sometimes take down a new listing after just one day, and some deals would be sealed without any viewing, while others would involve a few parties outbidding each other. However, the volume of enquiries has dropped now, with some viewings falling to pre-pandemic levels of just one or two a week, and deals sealed after weeks or even a couple of months of listing.

Tuzemen has managed to obtain 20% off some asking rents which he felt were "just a big gamble" on the landlord's part. "Getting 10% off (asking rents) seems to be common again," he said, although a great unit "priced correctly" could still lead to a bidding war. Jack Sheo, an associate division director at PropNex, said that rents have stopped going up and are moving sideways compared to six months ago when rents were going up every other day.

In November, things began to slow down, but many people attributed it to the market's usual year-end lull, as per Tan's observations. Tan, who manages 80 to 100 properties for landlords, said that everyone was away for the festive season in December, so they were not alarmed. Chinese New Year was in January, and they were still not worried in February. However, this month, it finally dawned on them that the trend is for real, and they can confidently say that the bull run is over.

Anticipating a rental slowdown, tenants are no longer in a hurry to commit to a lease, and many are requesting a one-year lease instead of the typical two. In contrast, landlords are trying to lock in tenants, with some even offering three-year contracts.

Agents have identified a gap between landlords' expectations and what tenants are willing to pay. According to Tan, this mismatch between the two parties has made it difficult for agents to close deals. However, she doesn't blame her clients, some of whom have been watching the rental market rise from the sidelines, as they were locked into rents from two years back.

"They were excited about what neighboring units were receiving," she said. "Finally, their leases are up, but if their agent informs them that the rental market is moderating, and we cannot increase the rent by that much now, and we have to ask for something more reasonable, they won't believe me and insist that we can get this.”

Agents ascribed the slowdown in the rental market to several factors, including a decrease in the number of tenants, overpriced rents, economic ambiguity, and the availability of more housing options as new residential projects are finalized.

According to an agent representing a US-based relocation company, her firm anticipates a decline in new arrivals in the next quarter. She stated that the tech sector and the number of incoming bankers have slowed significantly, but there are more individuals moving in from the oil and gas industry. Additionally, her peers in the relocation industry have noted a minor reduction in movement.

According to agents, the number of Chinese arrivals is not significant enough to have an impact on the overall market. Tan sees the slowdown as a natural progression of the market as it reaches the end of a cycle. She thinks that a market where rents have been increasing by 30% to 50% annually is not sustainable and is now correcting itself. Moreover, tenants can no longer afford the high rent since their salaries have not increased by the same percentage.

According to official data, private home rents experienced a significant surge of 29.7% last year, marking the highest annual increase in 16 years. This comes after a 9.9% rise in 2021. In the previous year, many locals resorted to renting as a temporary solution between properties, but this trend has subsided as their new homes were completed or purchased.

Additionally, approximately 18,000 new private residential units are expected to enter the market this year. According to Savills Research, last quarter alone saw the completion of 4,423 units, the highest number of completions in a quarter since Q4 2018 when 4,720 units were finished. Major upcoming projects set to be completed this year include Treasure at Tampines with 2,203 units and Normanton Park with 1,862 units.

According to Marc Chan, sales director at PropertyLimBrothers, the impact of the new supply on the market will vary depending on the location of the developments. Some areas are still facing a shortage of supply. Additionally, the gradual release of new projects and their location will play a significant role in their absorption. Looking ahead, Tan expects that April will be an intriguing month to observe, as the market has not yet reached a point where units remain unoccupied.

Leases that begin in March were largely agreed upon and signed months ago as tenants were apprehensive of further rent increases and renewed their leases early. However, units that are available from next month onwards are the ones being marketed during the slowdown. Agents admitted that landlords are in a difficult position due to the increase in mortgage rates and property taxes, but they need to be practical. Tuzemen stated that if a landlord's property is not being rented out, and they need the rental income to pay their mortgage, it is not advisable to resist the market.

Tan expressed skepticism about the prospect of rents continuing to rise this year, although she also hopes they won't fall. She thinks that for the first half of the year, they will probably remain at reasonable levels comparable to last year, with a median increase of around 30% compared to two years ago, rather than the more extreme hikes of 50%. In contrast, Sheo believes that a downtrend in rents is more likely, given the increase in supply and the lack of a corresponding spike in demand.

Sheo said that the heavy influx of foreigners that began a year ago has already subsided, and rents may start to decrease gradually in about three months and become more common by September. As the market returns to normal levels, factors such as location, infrastructure, and the condition of individual units will influence rental rates

A relocation agent stated that rents for properties located in the outskirts and not near train stations are likely to decrease. On the other hand, Sheo noted that larger units between 1,600 to 2,000 square feet have more bargaining power, but smaller units without any special features may require landlords to lower their rental demands to secure tenants quickly.

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