This analysis is by Bloomberg Intelligence Industry Analyst Ken Foong. It appeared first on the Bloomberg Terminal.
Singapore 2023 rental growth could moderate as new homes double
Singapore residential rents, which soared 20.8% from January to September, could rise at a slower rate of 10-15% this year with more than double 2022’s new homes set to be completed and vacancy rates increase. Resilient employment and household income could support landlords’ ability to raise rents and tenants’ ability to pay.
Housing rental growth could slow to 10-15%
Singapore residential landlords could continue to raise rents in 2023, possibly at a lower rate of 10-15%, to partly offset higher mortgage payments amid rising interest rates. This is likely to result in higher profits for home owners and serviced-residence operators such as CapitaLand Ascott Trust. An economic recovery with consensus estimating GDP growth of 2.1% in 2023 and 2.7% in 2024, along with resilient employment and household income, could underpin landlords’ ability to raise rents and tenants’ ability to pay for them. Yet, this might be partly offset by an increase in units built and higher vacancy rates.
Singapore’s residential rental index rose 8.3% quarter-over-quarter in 3Q22, the largest quarterly increase since 2007. This translates into a 20.8% growth in 1Q-3Q22 to a record of 137.9.
Higher rents needed to offset rate hikes
Potential investors might need to assume higher rental rates to offset the potential increase in mortgage payment caused by higher rates. DBS currently offers a floating-rate mortgage at 1% plus 3-month Singapore Overnight Rate Average (SORA) and a fixed-rate mortgage at 4.25%.
Three-month Sibor and the SORA could climb higher in tandem with the US fed funds rate, increasing mortgage payments for residential landlords. After the Fed’s first rate hike in March, three-month Sibor rose to 4.25% on Jan. 6, having hit a low of 0.41% in 2020 and a 2% peak in 2019. Three-month SORA, meanwhile, is less volatile and increased gradually from 0.13% in October 2021 to 3.14% on Dec. 27, 2022, before declining slightly to 3% on Jan. 6.
More home supply could moderate rental growth
Singapore residential rental growth could moderate in 2023 on an increase in new home completions. About 18,234 private residential units are expected to be built this year, based on 3Q22 data from the Urban Redevelopment Authority. This is slightly more than double the number of residential units built in 2022, partly due to construction delays as a result of the pandemic. New supply is expected to decline to an annual average of 10,307 units from 2024-25, below the annual average of about 14,000 units from 2010-19. This indicates that supply could be easily soaked up by demand over the next few years, underpinning moderate rental growth in Singapore.
Vacant homes could rise on more completions
The total number of vacant private residential units, along with the current low vacancy rate, could gradually increase in 2023 as more new homes are completed, resulting in a moderate rental growth for residential properties. A total of 21,898 private units were empty as of 3Q22, 9.5% lower than the same year-earlier period, according to Urban Redevelopment Authority data. The total number of vacant units stood at about 27,000 in 2014-17, when about 19,000 were built.
The vacancy rate was 5.7% in 3Q22, below the historical 10-year average of 6.8%. Yet, it could gradually increase along with the increase in new builds in 2023.
Bloomberg
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