Private Residential Rents Expected to Fall 5% Next Year?

According to statistics reported by the Urban Redevelopment Authority (URA), private residential leasing volume dropped by 9.8% year-on-year (YoY) in the third quarter of 2023.

A total of 23,145 private residential rental transactions were recorded in 3Q 2023, down from 25,657 transactions in 3Q 2022.

Although leasing volume rebounded 17.3% quarter-on-quarter (QoQ), it remained 12.8% below the 3Q average volume between 2018 and 2022.

The Core Central Region (CCR) bore the brunt of the slowdown, registering the steepest YoY decline of 10.4%. This was followed by the Rest of Central Region (RCR) with a 10.1% decrease, and the Outside Central Region (OCR) with a 9% fall.

The decline was primarily driven by a substantial supply of residential properties and sluggish global economic conditions, a trend anticipated to persist into next year.

Sluggish Quarter-on-Quarter Rental Growth

Based on URA data, the rental index for non-landed private residential properties edged up marginally by 0.2% in 3Q 2023.

This is noticeably lower than the quarterly growth rates recorded over the preceding 10 quarters since 1Q 2021, which ranged between 1.4% and 8.3%.

Rental growth moderated across all market segments. Non-landed private residential rents in the CCR slipped 1.7% QoQ, marking the first decline since 1Q 2021. This indicates that rents have plateaued, particularly in the high-end luxury segment.

In 3Q 2023, the average monthly rent for prime non-landed residential properties stood at $6.16 psf, down 0.6% QoQ. This also marked the first rental decline for this asset class after a cumulative 51.9% surge over the past two and a half years.

The softening rental momentum in the non-landed private residential sector can be attributed to a confluence of factors, including uncertain economic prospects, elevated inflation, softening labour market conditions, and an influx of newly completed homes.

Compared to other regions, micromarkets in the city centre experienced more pronounced QoQ declines.

Nonetheless, buoyed by robust performances in the first half of the year, non-landed private residential rents are still projected to clock a full-year YoY increase of around 10%.

Leasing data indicates that the rental moderation is broadening across more districts. In 3Q 2023, the supply of newly completed residential units continued to significantly outstrip net demand, pushing private residential vacancy rates up by 2.1 percentage points QoQ to 8.4% in 3Q 2023.

Supply will continue to outpace demand into the coming year. Approximately 17,000 new homes are slated for completion by the end of this year, with another 9,900 units expected to be completed next year.

Another driver behind the pullback is that amidst economic headwinds across Europe and Asia, most multinational corporations (MNCs) have adopted a highly cost-conscious stance, prompting them to rationalise the number of expatriate staff relocated to Singapore.

Should landlords show greater willingness to match tenants' rental expectations—as seen this year—rents may face further downward pressure. Nonetheless, the vacant stock of newly completed homes from this year is likely to be absorbed within a quarter or so.