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Opinion
Andy Mukherjee


NO RESPITE FROM SCORCHING SINGAPORE RENTS

The supply crunch can only ease with a better yield for homebuyers and
completion of new housing projects next year.

The skyline of Central Business District in Singapore.

Photographer: Ore Huiying/Bloomberg
By

Andy Mukherjee

+Follow
August 15, 2022 at 10:00 PM GMT


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Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies
and financial services in Asia. Previously, he worked for Reuters, the Straits
Times and Bloomberg News. @andymukherjee70
+ Get alerts forAndy Mukherjee

Singapore’s property market is in the throes of a 2008-type mania, with
landlords squeezing tenants for the last possible cent. The previous bout of
frenzy ended with the collapse of Lehman Brothers. This time, too, stratospheric
apartment rents will return to earth, though the process is unlikely to be as
swift as the city-state’s expat community might hope for. 

Among major global cities, Singapore tied with New York for the dubious
distinction of the fastest rental increase in first half of 2022. But the pain
for tenants isn’t over yet. To see why, consider the problem from the landlords’
perspective. Mortgage costs of 2.4% — a 1 percentage point premium over the
3-month Singapore Overnight Rate Average — are double what they were a year ago.



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During the pre-Lehman property craze, variable mortgage borrowing costs were
declining. Now they’re surging. As the US Federal Reserve pushes its policy
rates even higher, landlords will want to earn at least 3.5% annually on their
purchase cost. However, 3%-plus rental yields on a new investment can only be
found in the eastern or western suburbs, or in the northern parts of the island
— close to Malaysia. 

Home values around the central business district, preferred by expat
tenants, have gotten so expensive that yields have compressed: Rents there will
have to rise more to make the math work for homebuyers. Higher asking rents
will find plenty of takers in a tight market. But they will pinch bankers and
executives returning to the city as economic activity normalizes after the
pandemic. PropertyGuru Pte. says that based on converted sessions on its portal
— when house-hunters leave the listing page to inquire about the properties —
leasing demand in the so-called core central region is back. Although rents in
this pricey neighborhood jumped 7.7% in the second quarter, they’re still
playing catch-up. 


SINGAPORE RENTS CAN STILL RISE

Unlike in 2007-2008, fringes of the business district and the suburbs have run
ahead of the core central region; the latter will play catch-up now



Source: Urban Redevelopment Authority



The other reason why tenants mustn’t hope for an early reprieve is Hong Kong.
Singapore’s swift post-pandemic reopening has bolstered its appeal, even as
its rival financial center’s half-measures — like cutting a mandatory
hotel quarantine for visitors and returnees from seven days to three — make
living in the special Chinese administrative region a frustrating experience. As
Hong Kong shrinks — the 1.6% drop in its population in the 12 months to June was
the worst in at least six decades — Singapore has to bulk up. That will need
require some readjustment in its housing market.




During 2020 and 2021, household formation in the city-state crawled to a near
halt as Covid-19 hollowed out the ranks of foreign-born residents. Over at least
the last four decades, the only other instance of a freeze this harsh was during
2011-2012 when the government responded to its poor electoral performance by
coming down hard on immigration. But while the traditional source of condo
rentals — the expat population — waned during the pandemic, local demand waxed.
Delays in construction of subsidized Housing and Development Board flats had
young Singaporean couples temporarily renting HDB flats from others. When that
narrowed the affordability gap between public and private housing, some of the
pent-up demand spilled into the condo market.

Now, however, there are early indications of a reversal. In what’s “perhaps a
sign that the HDB rental market is finally slowing down,” asking rents for
public-housing flats on PropertyGuru posted their first quarterly decline in
three years in the three months to June, the portal’s researchers note. Albeit
tentative, this is good news for expats. Roughly 78% of resident households live
in public housing; even a slight shift in and out of this bigger market affects
rental demand for condos, which account for 17% of dwellings. (The remaining
5% live in landed homes.) 


SINGAPORE'S TWO HOUSING MARKETS

While the pandemic froze up immigration and household formation, delays in HDB
flats tipped some homeownership demand into the condo rental market



Source: Singapore Department of Statistics






Even with the government being picky about how many expats it lets in and
construction proceeding at its pre-Covid-19 pace, new homes to ease the current
crunch won’t get built overnight; tenants will get squeezed for a while longer.
Once rental yields are more in line with homebuyers’ rising interest costs,
there will be takers for the 17,400 new homes that will be ready island-wide
in 2023, up sharply from the 10,300 this year. That’s when rental growth
may moderate, according to Bloomberg Intelligence.




Some help will come from the government: Singapore imposes steep duties on
developers who hoard land to create scarcity. Many of the upcoming projects of
2023 may want to avoid the tax by releasing their units to individual buyers or
investment firms. The faster new houses get built and sold, the quicker the
private residential vacancy rate of 5.4% will ease toward the long-term average
of 7%.

Still, this isn’t 2008. In the absence of a major shock to the property market
from a global recession, the demand-supply equilibrium will take time to
restore. Meanwhile, tenants may struggle for a respite from scorching rents.

More From Bloomberg Opinion:

 * Singapore’s Beverly Hills Shows Sign of Froth: Andy Mukherjee
 * Singapore Landlords Don't Fear a Global Economy: Andy Mukherjee
 * Singapore Property Is Hot Even Without Expats: Andy Mukherjee

Want more from Bloomberg Opinion? Terminal readers head to OPIN <GO>. Web
readers, click here.

This column does not necessarily reflect the opinion of the editorial board or
Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Howard Chua-Eoan at hchuaeoan@bloomberg.net



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