Why it's foolish to say rising rents indicate strong rental market

Average rents up to $3.52psf in 4Q12 from $3.36psf a year ago.

According to Savills, the 4th Q is seasonally a low point. Nevertheless, the 4th quarter’s drop of 18.5% in the number of leases over the 3rd quarter was less pronounced than that of 2011 when we saw a 21% decline.

For the year 2012, the total number of leases was 49,500, 9.8% higher than the previous year.

Alan Cheong, senior director at Savills cautions that one should not be fooled into believing that rising rents for non-landed properties signal a strong rental market. On a $psf basis, the increase, he said,  is because tenants, when faced with less ostentatious budgets are leasing smaller apartments and also at further out places.

"As they back into this lower segment of the market, rents are bound to rise on a $psf basis. The larger apartments and those in the prime districts are not getting tenancy traction and are thus seeing rentals fall by up to 15-22% since mid-2010. Their plight are probably not reflected in the URA rental statistics because there are not enough such transactions to outweigh the greater number of low quantum sign-ons."

For 2013, the private residential leasing market will be one that will be defined by tenants with low budgets and leasing on personal terms; a tendency towards leasing on short term basis as tenants are engaged on a project basis; and quiescence on the financial sector front but active from the chemical and oil and gas sectors, said Savills. "Owing to the preponderance of short term leases, their constant renewals may also give us a false reading that rental market is in the intuitive sense of the word, very healthy."