Downward pressure on condo rentals?

[Segue]

I've been hearing that there is downward pressure on rentals now do to some of the recent cooling initiatives, and it is starting to become a renter's market.

The usual cycle is that landlords are in denial at first, hold on for months with empty units, then begin to take lower offers. Later, asking prices remain high, but there is a lot of negotiation room. Finally, published rental prices come down. I've seen this before in other markets - the whole cycle takes about a year for prices to adjust.

Any observations out there that would confirm that the rental market is starting to soften?

[kelvan]

rental market is definitely not softening yet and is still going strong imo.

my dad bought a private apartment to rent out nearly one year ago(current lease expiring soon) and recently when i checked, the asking rental for similar units in the development went up by another 10% at least. but of course its only a rough gauge and since its all still negotiable lol.

[beppi]

The cooling mechanism is against property speculation (i.e. buying with the sole intent of selling at a profit) - the government wants only those to buy a property who intend to live there themselves.
This might reduce property prices (less buyers on the market), but will increase rents (less properties available for rent, since speculators typically rent out while holding the property).

[Segue]

The cooling mechanism is against property speculation (i.e. buying with the sole intent of selling at a profit) - the government wants only those to buy a property who intend to live there themselves.
This might reduce property prices (less buyers on the market), but will increase rents (less properties available for rent, since speculators typically rent out while holding the property).

What happens is that when they try to flip the property for a profit, they find that they can not sell due to the softening market, so they hold on to it longer and rent it out. This means a greater supply of rentals - greater supply means lower rents. With 2012 and 2013 registering a record number of TOPs, this should also contribute to the oversupply.

A few years back in the last cycle, it was a buyers market. When I arrived in 2005, there was at least a 15-20% cushion for negotiation in rent. The cycle here is about 10 years so by my estimation, we are on the crest right now.

[teck21]

I agree with Segue. What's happening with a lot of investment units is that many owners are refusing to rent them out for anything less than 'market' rates, because that will bring their yield down and lessen the price they believe they can ask for if they want to sell in the short term.

And they can do this for two main reasons. First is that property prices are still stubbornly high, and that they will be able to dispose of their property before everyone else should prices come down. Yeah, right. It is this belief that gives them the mental strength to sit tight on an empty property.

If, and when evidence of prices coming down appear meaningfully, and these same owners realize the music has stopped and they have been left without a chair, more will be prepared to rent it out rather than sit on it any more, since they will have come to the realization that whatever imagined price they had for their property is no longer realizable in the short term.

And of course, low interest rates, the number one fueller of bubbles everywhere in the world makes the cost of holding on to empty properties possible.

Beppi, there's nothing wrong with your argument that the ABSD will increase rental demand. But you have assumed supply to be static, and that all the empty units will stay off the market.

*edited for spelling

[BillyB]

The cooling mechanism is against property speculation (i.e. buying with the sole intent of selling at a profit) - the government wants only those to buy a property who intend to live there themselves.
This might reduce property prices (less buyers on the market), but will increase rents (less properties available for rent, since speculators typically rent out while holding the property).

What happens is that when they try to flip the property for a profit, they find that they can not sell due to the softening market, so they hold on to it longer and rent it out. This means a greater supply of rentals - greater supply means lower rents. With 2012 and 2013 registering a record number of TOPs, this should also contribute to the oversupply.

A few years back in the last cycle, it was a buyers market. When I arrived in 2005, there was at least a 15-20% cushion for negotiation in rent. The cycle here is about 10 years so by my estimation, we are on the crest right now.

A cooling and uncertain market would force more people to 'wait and see', thus increasing rental numbers; keeping demand steady and keeping rental prices buoyant.

And I don't believe you'll see much of a change in the landlords attitudes. It's more kiasu than business logic. If anything, I think you'll see higher proposed rental prices from landlords playing a negotiating game.

[Segue]

I agree with Segue. What's happening with a lot of investment units is that many owners are refusing to rent them out for anything less than 'market' rates, because that will bring their yield down and lessen the price they believe they can ask for if they want to sell in the short term.

And they can do this for two main reasons. First is that property prices are still stubbornly high, and that they will be able to dispose of their property before everyone else should prices come down. Yeah, right. It is this belief that gives them the mental strength to sit tight on an empty property.

If, and when evidence of prices coming down appear meaningfully, and these same owners realize the music has stopped and they have been left without a chair, more will be prepared to rent it out rather than sit on it any more, since they will have come to the realization that whatever imagined price they had for their property is no longer realizable in the short term.

And of course, low interest rates, the number one fueller of bubbles everywhere in the world makes the cost of holding on to empty properties possible.

Beppi, there's nothing wrong with your argument that the ABSD will increase rental demand. But you have assumed supply to be static, and that all the empty units will stay off the market.

*edited for spelling

I've seen owners sit on property empty for a long time. I was in a River Valley condo and there was huge penthouse that was empty for almost two years. In 2007 the market had softened a bit and there was a lot of negotiation room. An agent told me that asking rate was 50% above what was realistic. After about 18 months, he finally realized that he had to deal with a negative yield on his investment and dropped the price and it was rented.

Yes it is kiasu logic but at the end of the day, cash is ultimately king.

[Segue]

I was hoping for more data points to support (or dispute) my hypothesis...anybody?

[Hidy Ho]

There is a guy who blogs that have some info/statistics on his site .. google "asiasingapore blog" to get the link to his blog.

[zzm9980]

You can't get more "data points" than this:

http://www.ura.gov.sg/realEstateWeb/rea ... roller.jpf


URA's search tool to show you all rental and purchase prices in Singapore.

[sundaymorningstaple]

+1 Excellent! It's going on my links page as well! Thanks!

[JR8]

+1 Excellent! It's going on my links page as well! Thanks!

It doesn't give individual rental transactions but the $PSF info is useful. You can look at the sales transactions and see the sizes of say 2 bed, 3 bed etc flats in a condo (in my previous condo the footage sizes by number of rooms are very uniform) and so extrapolate likely rent from that, or at least the probable range.

Also useful to be able to see say condo A will likely cost x% more than condo B...

[madaboutplastic]

rental pricing (non commercial) affected by number of expats (angmos) and singles. govt busy building studio or smaller flats for bachelors and lesbians and whoever that wants limited liability for a roof.

angmos are either losing jobs or getting localised contracts. wallets shrunk. the new flood of migrant workers are that engineers from india philippines and china whom are more than willing to squeeze ten persons in one room despite earning $5k per month.

condo owners can afford to wait out for price to increase... either when USD ever up or property area is really close to MRT. otherwise.. must find a migrant worker really fresh off boat and never surf net to have another few good years of rental income ahead.

[beppi]

^^^ Foreign? Maybe.
Talent? Surely not!

[AndrewV]

i see softening in the HDB rental market as well,
now a 3 room hdb in toa payoh central(walking distance from toa payoh mrt) can be gotten for around 1800(these were previously asking 2200-2400), plus the ads are repeating more often showing a lack of tenants