Condo rentals to drop as much as 10% by end-2015: ANZ

By The Folks @PropTalk - December 6, 2014 No Comments

Vacancies in the private residential market are set to inch up over the next few years as a supply glut looms, and this would exert downward pressure on rents and, hence, investment returns.

ANZ Bank flagged in a report on Friday that Singapore's population growth is not enough to absorb the new housing supply between 2014 to 2017, with record completions of new homes posing a "supply shock".

Daniel Wilson, economist for Asean and Pacific at ANZ Bank, said that he expects non-landed property rents to fall cumulatively by up to 10% by the end of next year, given the time lag between changes in vacancies and rents.

Rising interest rates pose a second headwind, he added, warning that a potential 100-basis point hike in interest rates next year could trigger a sharper fall in rents.

Vacancy rates in the first three quarters of this year have already outpaced the bank's expectations.

Data from the Urban Redevelopment Authority (URA) showed that private residential rents sank by a deeper 0.8% in the third quarter, after a 0.6% decline in the preceding quarter; the data showed overall private home prices slipped 0.7% in the third quarter.

The vacancy rate of private homes rose to 7.1% in the second and third quarters, the first since 2006 that it has exceeded 7%, with the vacancy rate for non-landed private homes already exceeding 8% in the second and third quarters.

Mr. Wilson said that a vacancy rate of 7.5 - 8.5% is deemed the tipping point at which "intensified downward pressure on property rents manifests itself". But the overall vacancy rate for private homes could rise to a higher 8.5 - 9.0% over the next two years, he projected.

"Though the supply pipeline is well-anticipated, its impact has not been tested," he said.

About 80,000 units are in the supply pipeline - including units under construction and planned development - way above the long-term average of about 60,000 units. Some 80% of these units are already under construction and many will be hitting the market over the next few years, according to Mr. Wilson.

URA's third quarter statistics showed that some 20,852 private condos and executive condos will be completed in 2014, significantly higher than the 13,150 units completed in 2013. Another 23,769 units are expected to be completed next year.

ANZ expects new completions of private condos to peak in 2016, nearly 2.5 times the long-term average.

Even by assuming that the population size of Singapore will grow to 5.9 million in 2020 with slightly over 80% of the households staying in HDB flats and the rest staying in private homes, the population growth is not sufficient to absorb the new supply, he warned.
Source: BT

The wife and I tried to obtain a copy of the ANZ research report from their website but unfortunately this is only available to their institutional clients, which we are not.

So if anyone can get us a copy to post here, it will be most appreciated.


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