Singapore private residential rents expected to decline in H2

An increase in supply and economic uncertainty contribute to the predicted rental softening, says Savills.

Despite the surprising rise in private residential rents during the first quarter, industry experts predict a slowdown in the latter half of 2023. 

In an exclusive video interview with Singapore Business Review, Alan Cheong, Executive Director of Savills Research & Consultancy highlighted two main factors for the predicted decline: supply and the economy. 

"Last year, we saw only about 1,000 units completed in the new sale market," Cheong noted. "This year, we're expecting close to 18,000 new units." He attributed last year's low numbers to pandemic-related construction delays and stressed that the significant increase in supply is expected to impact rental prices.

"The supply has now been pushed into 2023. So, 18,000 is a big number, and we will see more and more supply coming on stream starting from the first quarter onwards," Cheong added. However, he believes landlords’ high expectations kept the market buoyant in the early months of 2023.

Cheong pointed out the uncertainty surrounding the economy, particularly in the tech sector, which is undergoing massive restructuring. “The real economy is also suffering from what's happening in the US, especially on the interest rate front. So people are now again more circumspect about bringing in foreigners,” he said. This circumspection is anticipated to affect the demand for rental properties.

The Urban Redevelopment Authority (URA) reported a decline in both private residential and HDB rental transactions in the first quarter of 2023, the lowest since before the pandemic in 2018. Cheong attributed this to the current high rents which have led tenants to downgrade to single-room lettings or co-living units, which are not captured in URA's reports. 

“The rents are unlikely to retrace the 60% lineup as seen over the past years; mostly will fall like 10% from the peak,” he said, implying that whilst rents might soften, they are not expected to plummet.

Regarding the recent increase in the Additional Buyer's Stamp Duty for foreigners to 60%, Cheong believes that ultra-high-net-worth individuals are likely to continue renting whilst they wait for permanent residency status in Singapore. He said that these individuals might opt for rental agreements that enable them to deposit a larger sum upfront which could be used towards the final purchase price once they attain residency status.

“In the HDB market, rents will continue to go up because it is still relatively cheap. But it’s in the private end of the market that we’ll see some mild correction,” Cheong said, highlighting the divergence between private and public housing.