Rents for private homes to decline 5% next year: Savills Research

Savills Research: The decline of rents in the non-landed private residential sector is the result of the uncertain economic outlook, high inflation, weakening labour market as well as the increased supply of completed homes (Photo: Samuel Isaac Chua/EdgeProp Singapore).

The private residential leasing volume has dropped by 9.8% y-o-y in 3Q2023, Savills Research reported based on statistics from URA.

A total of 23,145 leasing transactions for private homes were transacted in 3Q2023, which is lower than 25,657 transactions in 3Q2022.

This was despite the seasonal q-o-q rebound of 17.3% and is 12.8% lower than the average third-quarter leasing volume between 2018 and 2022.

The Core Central Region (CCR) market was hit with the biggest y-o-y decrease of 10.4%. This was followed by a 10.1% decline in the Rest of Central Region and a 9.0% decline for the Outside of Central Region market.

The decline is mainly attributed to high residential property supply and poor global economic conditions, which are expected to continue next year, Savills Singapore says in a press release on Nov 21. The rental decline is forecasted to be about 5% next year due to these reasons.

Slow rent growths q-o-q

Based on URA statistics, the rental index of non-landed private residential properties rose at a slow pace of 0.2% in 3Q2023.

This is significantly lower than the range of quarterly growth rate in the previous 10 quarters since 1Q2021, which is between 1.4% and 8.3%.

The growth of rents slowed for all market segments. Rents of non-landed properties in the CCR declined by 1.7% q-o-q for the first time since 1Q2021. This indicates that rents have reached a plateau, particularly in the high-end market segment, according to the press release.

Based on Savills’ research, the average monthly rent of high-end non-landed residential properties was $6.16 psf per month in 3Q2023, indicating a 0.6% dip q-o-q. This is also the first rental decrease for such properties, which had seen an accumulated growth of 51.9% for the last 2½ years.

“The decline of rents in the non-landed private residential sector is the result of the confluence of events ranging from the uncertain economic outlook, high inflation, weakening labour market as well as the increased number of completed homes,” the report says.

The report adds that the River Valley and Downtown micro-markets experienced a higher q-o-q drop compared to other areas.

Still, non-landed residential property rents are expected to rise 10% y-o-y due to the strong showing in the first half of this year.

Savills Singapore’s Alan Cheong, executive director of research and consultancy, says the leasing data shows that rental declines are beginning to permeate through to more districts. “New residential property supply still significantly outpaced net demand in 3Q2023, pushing up the vacancy rate for private homes by 2.1 percentage points q-o-q to 8.4% in 3Q2023,” Cheong notes.

He adds that the supply will continue to outpace demand next year. There will be 17,000 new residential units completed by the end of the year, and another 9,900 units are expected to be completed next year.

“The other reason for the decline is external. With economic headwinds blowing in Europe and Asia, most multinational companies will be extremely cost-conscious, and this will cascade down to the number of foreign workers they may wish to quarter in Singapore,” Cheong notes.

Savills Singapore’s managing director of Livethere Residential, George Tan, says that If landlords accept tenants’ asking rents, rents will likely decline, as seen this year. “However, the vacant stock of this year’s new completions should be taken up within a quarter or so. When that happens, vacancies are expected to then fall back to above 7% levels.”