The great divide in rental market

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#1
The Straits Times
www.straitstimes.com
Published on Dec 09, 2012
small change
The great divide in rental market

Landlords used to have their pick of tenants, but no more; more people opting for mass-market instead of high-end condos

By goh eng yeow senior correspondent

Recently a friend posed this interesting question: If the residential market is so hot, why did she have to slash her rent to get a tenant?

If she had owned a run-down apartment in an undesirable neighbourhood her predicament would have been understandable.

But her apartment is in a posh condominium within a stone's throw of landmarks such as St Regis Hotel and Tanglin Mall, high up in the sky with a panoramic view of the city.

Her previous tenant - a hedge fund manager - had terminated the lease prematurely after losing his job.

The flat was vacant for two months, and she finally had to slash the rent by 25per cent to get a tenant.

It sums up the dilemma faced by owners of upmarket condos. On paper, their investments look good because they appear to have appreciated sharply, but they are not getting much by way of returns in the form of rent because the pool of high-flying tenants appears to be drying up.

Two years ago, landlords could call the shots and pick and choose tenants.

The economy had experienced a V-shaped recovery after the global financial crisis and large numbers of expatriates were flocking to work in our financial centre.

But since then, the pool of tenants has shrunk: The job market for high-paid expatriates has slowed while competition has intensified, given the number of new residential projects that have been completed.

Urban Redevelopment Authority (URA) data bears this out.

In 2010, private housing rentals jumped by 17.9per cent, but last year they went up just 3.8per cent, while a record number of leases - 41,573 - were signed.

Rents in most locations this year look like they will hold up at best at last year's levels, according to URA numbers for for the first nine months.

The only exception appears to be Geylang. This has become more popular among tenants as they flock to lease cheap shoe-box units, with floor areas of 500 sq ft or less.

That means desperate owners of upmarket condos like my friend will have to settle for less in order to get some rental income to service their mortgage.

And the going may get tougher.

Sure, bad news such as UBS' announcement that it is cutting 10,000 jobs has cast a pall over other international financial centres like London, where the global lender has vast operations, as it may herald a growing trend of financial service cut-backs.

But landlords in Singapore could feel the pinch if the blood-letting occurs here.

In recent years, loads of investment bankers have relocated to Singapore from London and New York, as global lenders sniff more business opportunities amid a regional boom.

The saving grace is that the chill of a falling rental market is only being felt in the upmarket condo segment - so far at least. Landlords with mass market condos are having few difficulties renting out units as tenants downsize to more affordable apartments.

On the supply side, there seems to be no end to the horror scenarios painted by dour analysts citing the number of homes due for completion that could put further pressure on rents if the pool of high-flying tenants keeps shrinking.

A recent Nomura report, for example, flags that the number of newly completed homes next year may hit 42,309, including the 24,551 HDB flats being built by the Government.

This compares with the 21,859 units completed this year and the average annual housing demand of just under 20,000 units since 2001.

The Straits Times reported that high-end developments such as The Marq on Paterson Hill and Hilltops in Cairnhill Circle have been completed for at least a year but still have numerous units unsold.

Still, there is a valuable lesson here for investors who believe that buying a residential property is a sure ticket to riches.

Sure, mortgage rates are at rock-bottom, which makes financing a condo a breeze.

But that is only part of the story. Unless you plan to occupy the flat yourself, getting a tenant may not be as simple as you think.

It is just as well that the Government's October cooling measures were aimed at stopping buyers from over-extending themselves.

Home loans have been capped at a tenure of 35 years, while those taking a loan of more than 30 years, or taking loans that extend past the retirement age of 65, will have to fork out more in cash.

This will weed out the property investors least able to cope financially if they have only the rental income to rely on to pay the mortgage if a slowdown hits.

Just like quicksand, getting into a property investment may be much easier than getting out of it.

engyeow@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
count herself lucky. she own a residential ppty and by dropping her rental expectation, she should be able to rent our her ppty.

there is a new buzz in investing in industrial ppty.
when the tidal wave turn, the trick might not work...
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#3
too much supply coming online over the next 2-3 yrs... don't think it's sustainable for rentals to hold at all! :O

Coupled with interest rates raise.... double whammy! :O
1) Try NOT to LOSE money!
2) Do NOT SELL in BEAR, BUY-BUY-BUY! invest in managements/companies that does the same!
3) CASH in hand is KING in BEAR! 
4) In BULL, SELL-SELL-SELL! 
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#4
Perhaps rental would be the future bugbear of the current crop of investors who purchased investment properties due to be completed in 2-3 years time.

Aside from potential capital appreciation, most people want a steady stream of cash to tide over their loan installments. If rents were to stagnate or even decline, that would be a problem. Even without interest rates rising, I think it would result in many unhappy faces..... Big Grin
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#5
The recent media reports seemed to suggest dual key condo/EC units are popular with property buyers. Probably buyers are thinking of living in the main unit and renting out the adjoining unit. By working the rental income into the financial computations, the million dollar price tag no longer seems high.
The risk, as many forumers had pointed out, is the state of the rental market after key collection.
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#6
With the numerous anti-speculation that is in placed, it is going to be difficult for profitable investment properties. Given that rents have came off, it is already an indication that either supply has caught up or demand has declined. It will be worst if it is a combination of both demand and supply factors. Falling rentals could well be the pin that pricks the hugely inflated bubble.

On the owner occupied side, one has to question if many buyers have been stretching their affordability given that property prices has soared since GFC years due to the abundance of hot money both domestically and globally.

Realistically, real wages has stagnated globally since GFC and in some parts of the world has declined due to their respective debt crisis. Singapore would not be spared especially if growth areas shifted back to countries that have successfully resolved their debt issues and lowered their costs of production. US is certainly one big economy that is currently leading the way for bottoming and recovery. With a big economy recovering, one can never rule out the return of expat talents.

Hence, it is better to stay prudent when thinking of upgrading one's owned home or to consider an investment properties. In terms of equities investments in property sector - it will be prudent to invest in developers with substantially sold developments and avoid those with substantial landbank at recently acquired prices.

(09-12-2012, 11:51 AM)Musicwhiz Wrote: Perhaps rental would be the future bugbear of the current crop of investors who purchased investment properties due to be completed in 2-3 years time.

Aside from potential capital appreciation, most people want a steady stream of cash to tide over their loan installments. If rents were to stagnate or even decline, that would be a problem. Even without interest rates rising, I think it would result in many unhappy faces..... Big Grin
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