Will frustrated homebuyers turn to renting properties over costly residential purchases?

Private home rents are still around 12% below their peak levels in 2013.

With rents for private residential properties climbing in Q2, Singapore’s leasing market is slowly stabilising as it enters a new and positive market cycle that not even the spectre of escalating US-Sino tensions could dampen.

Also read: Resale market bears brunt of property curbs

The overall rental index for private residential properties rose by 1% QoQ in Q2 on the back of heated market take-up which have pushed island-wide vacancy levels to tighten to 7.1%.

Rents for landed properties picked up after a dismal performance in the previous quarter after rising 3.6% QoQ in Q2 whilst leasing costs for non-landed properties also inched up by 0.6% in Q2, according to real estate agency Savills.

Average monthly rents for high-end condos also rose by 0.5% in Q2 to $4.11 psf in Q2 on the back of a supply shortage due to the physical demolition of projects that have been sold en bloc.

The positive rental growth, however, is still around 12% below the peak in Q3 2013, noted Savills, which presents an opportunity for buyers to embrace the leasing market over costly property acquisitions.

“This is because rental yields are currently at levels that, for those who think rationally, make renting more worthwhile than purchasing,” the firm said in a research note.

Despite the mild recovery in Q2, rents are not expected to accelerate into full-fledged recovery anytime soon as there is a limit to how much landlords can push for higher rents given the constrained budgets of overseas workers, Alan Cheong, senior director for research at Savills told Singapore Business Review.

“Also, there is still a continuing stream of new supply coming onto the market and this would cap any rental increase. Thus rents may just bump around at current levels in 2018,” he added.

However, instead of cashing in on this opportunity by embracing the leasing market against a controlled growth in rental costs at around 2-3% by end-2018, Savills notes that homebuyers remain headstrong with their property purchases.

“[W]e we believe that most punters, including buyers in general, are not driven by such rational thinking and would still rather purchase at least a replacement unit and deploy their remaining collective sales’ proceeds to acquire another property for investment,” the firm noted.

Landed property is still a good investment over condominiums due to the amount of living space and generous facilities as some new developments in Districts 27 and 28 are currently for sale, observed Ong Choon Fah, ceo at Edmund Tie & Company (ET& Co). 

She cited the freehold development Watercove by Bukit Sembawang Estates Limited as one such project as buyers are able to enjoy the best of both worlds: enjoy a landed home but with condo-like facilities such as a swimming pool, a BBQ corner and seaside view.