Ghost town alert: Vacant homes up 32% to 16,877

It will get worse in two years.

According to Savills, with more homes completed over the past year, the market has seen a signii cant rise in vacant units islandwide. From the trough in Q1/2011, the number of vacant units has increased by 32% from 12,740 to 16,877 units in Q3/2012, pushing the vacancy rate up from 4.9% to 6.1% over the same period. As of Q3 this year, the number of vacant condos stands at 14,198 units and vacant houses at 2,679 units.

The vacancy rate in the Central region was 7.9% in Q3/2012, above the five-year average of 7.5%. Similarly, the vacancy rates in the eastern and western regions of Singapore were 4.5% and 4.0% in Q3, higher than the 3.5% and 3.6% five-year averages respectively.

The vacancy rate increases are in tandem with a surge in condo completions in these areas. Some major completions over the past year include Caspian (712 units) and Mi Casa (457 units) in the west; and Double Bay Residences (646 units), Waterfront Waves (405 units) and Optima (297 units) in the east. The completions in the Central region include Reflections (1,129 units), Floridian (336 units), The Trizon (289  units), Parvis (248 units), Viva (235units) and The Wharf (186 units).

The number of vacant units is set to increase in the months ahead as an avalanche of new homes will be completed within the next two years. According to URA data, 91,869 new homes will be released to the market in the next i ve years, more than half of which have been sold. The growing supply of new homes poses a significant risk to investors who have bought private homes for rental investment, particularly if interest rates should rise.

Although it has been reported that many new homes were bought for owner occupation, the emergence of shadow spaces when owners relocate into their new premises may prove to be an additional challenge for both the leasing and sales markets. If demand from population growth does not rise in tandem and interest rates start to rise, a signii cant rental correction cannot be discounted. The likelihood of an interest-rate spike is, however, small for the moment.