Islandwide home vacancy rate feared to jump to record high in 2016

Almost 21,000 units will flood the market.

The islandwide home vacancy rate is feared to hit a record high in 2016, on back of the almost 21,000 private homes that will hit the market next year.

According to Barclays, new home completions will rise to 20,900 by the end of 2016, up from 19,900 in 2015. This will cause the overall vacancy rate to spike to 9.8%.

Apart from the private supply glut, the report noted that occupancy rates will also be pressured by significant public housing completions in coming quarters.

“We also expect public housing completions to increase from 28,000 units in 2014 to 26,000 in 2015E and 20,000 in 2016E. As a result, the overall vacancy rate increased to 7.2% at the end of 1Q15. Island-wide private home rents have fallen 5% from their 3Q13 peak, while suburban rents have fallen 6% from their 2Q13 peak,” the report said.

History shows that prices tend to decline significantly when the vacancy rate has exceeded 8%, Barclays added.

For instance, private home prices fell 45% during the Asian financial crisis 2Q96 and 4Q98 as the vacancy rate rose from 6.2% to 9.7%.

“With an annual private home demand of only 15,000 units--we estimate 55% of total annual household formation of 26-27,00 to live in or enable upgrades to private homes--we estimate the vacancy rate could reach 9.8% by 2016E,” Barclays stated.