Home Leasing Market Predicted To Slow This Year

Leasing activity in the private residential market is predicted to slow this year as the vague economic outlook causes companies to be more prudent in employing expatriates. Nevertheless there may be some leasing opportunities taking place from latest cooling measures, particularly December’s announcement of the 10 per cent additional buyer’s stamp duty (ABSD) on foreigners who purchase private homes.

Expatriates who are likely to pay the ABSD are expected to keep away from buying private homes as far as possible. Even those who are not liable to pay the duty may carry on leasing homes for fear that housing prices may drop shortly right after they make their purchases. This provides some support for the residential leasing market and alleviates drastic falls in rentals.

There are usually two groups of foreigners who purchase residential property: The first compose of those who are not in Singapore and purchase properties here for investments purposes. On the other hand, the other group consists of those who work here and come to a decision to acquire a home after growing familiar with Singapore.

The spate of corporate expansions in 2010 and the first half of last year have resulted in an increase in expatriates coming to Singapore, whether on partial or full housing packages or on local terms. Some of these foreigners who signed one-year leases may have purchased a residential property last year, at the same time as some who manage to sign a two-year (or one-plus-one year) leases are all set to look for a Singapore property to buy.

But with the ABSD, this group of foreign buyers is even more likely to think twice before committing to a private home in the event that prices fall after the purchase, mainly for resale homes. Given the new measures, this group may hold back their decision to buy and would rather renew leases for a year, or extend by half a year if this is possible.

 Around 12,000 new homes will be finished this year, in excess of the 15-year average of about 10,000 new units per year. This number is not appalling as the recent years have witness rapid population growth in Singapore.

The new units that will come on stream this year will be considered as moderate supply if there is a continued economic growth momentum. This implies that the leasing market this year will be demand-led instead of supply-driven. The real supply-led concerns will surface in 2014, when about 20,000 units are projected to be completed.

The demanding economic conditions this year are expected to persuade new property owners to be more realistic in their asking rentals in order to procure tenants. As rentals for new units become competitively priced, older apartments in inferior physical condition is likely to suffer rental pressure. There may be some “flight to quality” by tenants whose leases end, to move to newer apartments if the asking rents are attractive.

The slowdown is not a new occurrence in a mature property market such as Singapore. After going through quite a a small number of property market cycles, homeowners here identify that property ownership and investment is for the long term.

Having a long-term view also denotes that many owners of centrally-located properties are aware that they have to “put up a little” through the year by presenting more competitive rentals. There can be potential for raising rentals in due course when economic growth picks up pace again. While this reflects increasing the maturity and market sensitivity of owners, it also signify that competition in the leasing market will become more powerful as more owners become more and more strategic.

The challenging economic climate is eroding the financial stability of some property owners, including those who have bought homes for owner-occupation.

More owners, including some who bought resale apartments in centrally-located areas for own use  last year and are liable for seller’s stamp duty if they resell their properties within four years, are now considering renting out a room or two to ease their financial burden.

Meanwhile, more mid- to senior level expatriates are opting to live in lower-cost accommodation upon the expiration of the lease in light of the weakened economic and business conditions. Expatriates having housing allowances are focusing more on functionality than on luxury, reflecting their sensitivity to the companies’ running costs in Singapore.

As such, luxury apartments of 2,000 sq ft and above may lose some shine to the “second best high-end” apartments in the central area. The latter include the River Valley and Somerset area, where “walkability” to the main Orchard Road area can be an attraction to young professionals. Some well-positioned areas like Novena, Bukit Timah, East Coast, or even new growth areas like one-north may also be pretty attractive for the mid-level expatriates who are on partial housing allowances or on local terms.