Private home rents may wobble but won't crash

August 2, 2008
Private home rents may wobble but won't crash
Fears of their decline next year may be somewhat exaggerated
By UMA SHANKARI

(SINGAPORE) Recent media reports predicting that private home rents
will take a steep dive next year are certainly alarming. But a closer
look at the numbers suggests that they may not take such a beating
after all.

Last week, CB Richard Ellis (CBRE) said that it expects rents to fall
by 5-10 per cent on average next year. In the prime areas, rents
could slide by up to 15 per cent, the property firm said.

The projections are based on two major assumptions: that a record
number of homes will be completed next year; and that the tenant pool
here will shrink significantly as corporations stop hiring
expatriates or, in some cases, even send some expats home.

'It's a double blow,' said CBRE Research.

However, developers and other analysts say that the number of
completed homes may not be that high and the economic situation next
year not that bad.

According to CBRE's data, 13,400 homes will be completed next year.
But official estimates from the Urban Redevelopment Authority (URA)
put the number of landed and non-landed private homes expected to be
completed in 2009 at a more modest 10,418.

Likewise, CapitaLand's in-house estimates say that about 12,000 units
will be completed from the second half of 2008 to end-2009.

'It is a comfortable number,' Patricia Chia, head of CapitaLand's
Singapore residential unit, told reporters at the developer's second-
quarter results briefing yesterday. Over the past six years, 8,000-
8,500 private homes were completed on average each year, she said.

There are also demolitions to consider. CBRE said there will be 1,700-
1,850 units demolished in 2009. Net supply next year could therefore
come in even lower.

Take, for example, Q2 2008 numbers. According to Citigroup, while
2,587 units were completed in the second quarter, net supply was only
761 - implying that some 1,826 units were demolished. This partly
helped occupancy rebound slightly to 93.9 per cent following three
consecutive quarters of decline, the bank said in a recent report.

Rentals will also be helped by other factors, developers point out.
Many of the new units coming onstream in 2009 and 2010 have already
been sold, and not all of them will end up on the rental market.

The HDB market, where prices rose 4.5 per cent quarter-on-quarter in
Q2, is also cause for optimism. The number of HDB resale applications
also rose 22 per cent quarter-on-quarter.

'HDB upgraders who buy mass market private units will not rent out
their new homes,' said one developer. 'Many of the units in new mass
market condos completed in 2009 and 2010 will not be part of the
supply for renters.'

For now, while rental growth is slowing down, it is still on the
uptrend. Citigroup said that rentals rose 2.5 per cent quarter-on-
quarter in Q2 - much slower than the 6 per cent increase seen in the
first quarter.

But the other, bigger factor which could also lead to rents taking a
precipitous plunge next year - the state of the macroeconomic
environment - is still up in the air.

CBRE, for example, adopted scenarios in which the economic climate
either stays the same or worsens in 2009 to arrive at its forecasts.

Other analysts, on the other hand, expect things to turn around in
the second half of 2009.

For now, jobs growth is continuing apace, they point out. 70,600 new
jobs were created in the second quarter, down only slightly from a
record 73,200 jobs in Q1 and the second highest job creation rate on
record.

The slowdown in services jobs creation to 37,600, from a record
46,500 jobs in Q1, was however a cause for concern. 'We suspect much
of this may have reflected a slowdown in financial services hiring,'
said Citigroup economist Kit Wei Zheng.

But while firms in the financial sector may hold off on hiring,
companies in other industries should continue hiring next year. The
overall pool of renters should therefore continue to climb in 2009.

'There should be enough people looking to rent in the next 12-18
months,' said Ku Swee Yong, director of marketing and business
development at Savills Singapore.

Growth in mass market and HDB rents should continue next year, he
said. But asking rents at large high-end apartments - of 4,000 sq ft
and more - could fall as companies cut back on housing allowances for
their employees, Mr Ku added.

As for overall rents, it's anybody's guess. Much depends on how
quickly the world recovers from the US sub-prime mortgage crisis - or
how much worse things get. But private home rentals here are unlikely
to make a large reversal.