Q2 private home leasing volume drops 6.5% y-o-y

After surging over the past two years, rental growth for local non-landed private residential properties showed signs of moderating in the second quarter of this year. The Urban Redevelopment Authority's (URA) islandwide rental index grew by 2.8% in Q2, easing significantly from the 7.2% rise in Q1. The decelerating rental growth has prompted analysts to lower their full-year rental growth forecasts.

According to a Q2 residential rental market research report, challenging global macroeconomic conditions coupled with persistently high rents resulted in 19,699 private residential leasing transactions in the second quarter, representing a 1.9% quarter-on-quarter (QoQ) decrease and a 6.5% year-on-year (YoY) decline.

As of the second quarter of this year, islandwide non-landed private residential stock increased by 1.1% QoQ to nearly 400,000 units, while the overall vacancy rate rose for two consecutive months; the private residential vacancy rate stood at 6.3% in Q2, an increase of 30 basis points.

By market segment, rental transaction volume in the Rest of Central Region (RCR) saw the steepest drop, slipping 2.8% QoQ to 6,485 deals, while the Outside Central Region (OCR) recorded a 2.4% QoQ decline with 6,583 transactions.

Despite the drop in leasing volume, rents continued on an upward trajectory, albeit at a markedly slower pace.

Tighter Tenant Budgets and Expanding Private Home Supply

The report highlighted that economic uncertainty and elevated inflation have squeezed tenant budgets, prompting many to opt for more affordable locations, smaller units, or flat-sharing arrangements. With the influx of new supply, it is taking longer to secure tenants, compelling landlords to accept rents below their initial expectations.

The moderating rental growth reflects growing resistance from tenants alongside the steady completion of new housing stock. Even expatriates with rental allowances are reassessing their housing options in light of Singapore's significantly rising cost of living.

According to the report, rents of non-landed private residential properties rose by 2.3% QoQ in Q2, slowing considerably from the 6.2% gain in Q1. Mass-market private homes in the Outside Central Region (OCR) recorded the highest rental growth at 2.9% QoQ, while rents for upscale homes in the Core Central Region (CCR) and mid-tier homes in the Rest of Central Region (RCR) both increased by 2.0%.

While rents have begun to stabilise at elevated levels, performance in the second half of the year will hinge on economic fundamentals and whether more relocations from Hong Kong materialise.

Hong Kong Inflow Could Shape Future Rental Performance

As more residents depart Hong Kong, a portion is expected to relocate to Singapore. Although empirical data remains limited, analysts believe that in the absence of a robust global economic recovery, inflows from Hong Kong could be a key factor determining future rental performance.

In the second quarter, a total of 4,401 private residential units obtained their Temporary Occupation Permit (TOP), of which 4,297 were non-landed private homes. This marks the second-highest quarterly completion volume since the onset of the pandemic, behind the peak recorded in Q4 last year.

By the end of the second quarter, total islandwide private residential stock increased by 1.1% to 398,289 units. The overall vacancy rate rose for two consecutive quarters to 6.3% in Q2, up 0.3 percentage points, driven mainly by a 0.4 percentage point increase in non-landed private home vacancies.

As for rental outlooks, full-year private home rental growth is projected to come in between 12% and 15%.

While it was projected at the end of last year that Core Central Region (CCR) rents would surge by 15% this year, current conditions suggest that overall residential rents will likely rise by 5% to 10% instead.