SINGAPORE (EDGEPROP) - The URA rental index for private residential properties grew 2.9% during the quarter, a further improvement from the rise of 2.2% in 1Q2021 as the economic recovery led to improved hiring and a declining unemployment rate. “This has lifted leasing demand and together with low new completions, rents are on the increase,” says Nicholas Mak, ERA Realty head of research. (See also: [UPDATE] Tackling challenges faced by Covid-hit construction sector)

The rise in rents in 2Q2021 seems to be broad-based, with rents for non-landed homes rising 3.6% in OCR (Outside Central Region), 3.1% in CCR (Core Central Region) and 2.8% in RCR (Rest of Central Region). Rents are expected to continue rising for the rest of 2021 as the oncoming completed supply is likely to be low, with 3,684 units to be completed in the second half of the year, according to URA data.

“As the pandemic caused disruptions in the construction industry, the completions of both public and private residential projects were delayed,” says Mak. “As a result, some households are renting residential properties while waiting for the completion of their acquired properties.”

The strongest rental growth of 3.6% q-o-q was in the suburban areas or OCR (Outside Central Region). This is because as at January 2020 when the pandemic started, about 40% of the uncompleted private condominiums sold were located in the OCR. “Many of the buyers of suburban condominiums are HDB upgraders,” points out Mak.

Some of these HDB upgraders had purchased their new homes when the project was launched some time ago. They were expecting to take the keys to their new homes this year. Many had sold their HDB flats recently to take advantage of the robust demand and prices in the HDB resale market, reckons Mak. “With the completion of their new homes being delayed due to the pandemic, they may have to rent a home temporarily,” he says. (See: Find HDB flats for rent or sale with our Singapore HDB directory)

Besides temporarily displaced homebuyers, near-term demand is also supported by housing needs of “foreigners in limbo due to travel restrictions”, says Leonard Tay, Knight Frank Singapore head of research. “Demand and rental prospects over the longer term will alter according to structural changes in the workforce of the future,” he observes. “Expatriates that have been apart from their families for an extended period might also decide to return to their home countries sooner rather than later.”

With fewer new units being completed, and the economy on the mend, vacancy rates have improved marginally from 6.4% in 1Q22021 to 6.3% in 2Q2021, according to ERA Research. The net absorption of 2,020 units in 2Q21, exceeds the 1,645 newly completed units added to total stock, points out Mak.

“After declining for half of 2020, the growth rate of the private residential property rental index accelerated in the past six months,” says Mak. Year-to-date, private rents have increased 5.2%, which has more than reversed the 0.6% y-o-y contraction in 2020.

Mak is projecting residential rental growth of 8% to 12% y-o-y in 2021, outperforming the y-o-y growth rate of private housing prices, which he projects to be in the 5% to 8% range.

Knight Frank is likewise projecting overall rents in the private home market to rise by about 8% for the whole of 2021.