Patience is key: Investors’ holding power tested as interest rates rise and rents fall

Property owners prepare to pounce on rare good deals.

As investors stubbornly await for cooling measures to be lifted, they may have to wait for a little while longer, as holding costs rise in tandem with interest rates, and rents are likely to remain soft.

According to Celine Chan, an analyst from Orange Tee, investors’ mettle would be put to the test, as they can’t expect cooling measures to be lifted soon and the market faces an upcoming supply deluge.

However, the gloomy outlook can’t overshadow the occasional profitable deal for investors.

“Good deals should arise amidst bearish market sentiments, and keen eyed investors should be able to pick up a bargain or two,” Chan said.

Meanwhile, unsold inventories continue to fall, partly due to the tapering of Government Land Sales sites in recent years and the consistent demand for new launches.

“Notably, the number of unsold completed inventories in the CCR has fallen significantly, from 1,917 units in 2Q15 to 1,261 units in 3Q15. With prices (high-end) significantly lower from their peaks, the high end market presents an attractive value proposition for interested buyers,” Chan explained.

Chan also notes that occupancy rates have improved slightly, but she warned that it’s likely to trend downwards. Occupancy rates have risen to 92.2% in 3Q from 92.1% in the previous quarter.

“58,348 private residential units are expected to be completed over the next few years, and 33,228 units will be in the OCR, which represents 57% of the pipeline supply. The CCR and RCR are expected to see 8,441 and 16,679 units completing over the next few years. With record impending supply and demand remaining capped due to tightened foreign labour conditions, occupancy rates are expected to fall,” Chan said.

Private residential prices and rents have also fallen substantially in 3Q, as the latter is now down by 8% since its peak in 3Q13.

“On a quarterly basis, the private residential property price index has fallen by 1.3%, which is the largest quarterly fall since 2Q09. Prices for non-landed properties in core central region (CCR) fell by 1.2%, while rest of central area (RCR) and outside central region (OCR) both registered a 1.6% decline,” Chan said.