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High Property Vacancy Rate Will Continue to Haunt the Singapore Real Estate Market in 2018

The sales and property developments continue to rise in Singapore, analysts are concerned with the ability of the market to absorb the homes hitting the market.

BankBazaar Singapore – December 22, 2017

SINGAPORE: While en bloc sales and property developments continue to rise in Singapore, analysts are concerned with the ability of the market to absorb the homes hitting the market. In 2018 alone, around 10,000 private homes are likely to enter the market, but the surge in supply may not be met with the same rate of enthusiasm on the demand side.

The supply-demand imbalance can be gauged from the fact that the property vacancy rate has surpassed the historical average of 8.4% this year. Analysts point out to the fact that the population growth in Singapore has slowed down from 3% between 2007 and 2012 to 1.1% between 2012 and 2017. This fact would further put strain on the rental prices and the ability of property owners to service their debts.

A recent trend observed is that for every unit sold in en bloc deals, three to four units from the redeveloped projects replace it. Hence, despite positive sentiments amidst an environment of softening interest rates and increasing property prices, the rental prices continue to stay muted.

Central Bank Sees Downside to Oversupply

In the recently published financial stability review, the Monetary Authority of Singapore (MAS) has issued a solemn warning to real estate investors. It has observed that quickly rising vacancy rates, stressed rental prices and impending hikes in interest rates could affect an investor’s plan to solely depend on rental incomes to service real estate loans.

While there are clear signs of recovery in the Singapore property sales market with the number of homes sold rising to 1,252 in October 2017 against 509 in September 2017, residential property prices dropped 1.5% Q-o-Q from the second to the third quarter 2017. This is also the largest Q-o-Q drop in property prices since 2009 amidst the global financial turmoil.

The property vacancy rates continue to hover around an uncomfortable 8.7% in the third quarter, down from 8.9% in the second quarter. Worryingly, it still continues to be over the historical average.

Property Outlook for 2018

In 2017, with the revival of the collective property sales market, around 20 projects worth more than S$6 billion were sold. Estimates suggest that another 20,000 new units from en bloc sales will hit the market from sales this year. This is twice the number of unsold units already in the pipeline and will only pile up the agony for property owners. Around 16 to 22 projects may be launched in 2018.

The outlook for HDB flats aren’t great either. For the first three quarters in 2017, around 2,200 less HDB flats were sublet compared to the figures in the first three quarters of 2016. While there is a trend that suggests that renters have started to look more favourably at private homes vis-à-vis HDB flats, oversupply and a cap on foreign worker entry into the city-state could continue to keep the rental prices soft.

Increase in Property Prices

With an anticipated recovery in the domestic real estate market and continuing favourable interest rates, property prices are expected to increase. While news of 30,000 new homes still unoccupied in 2017 may come as dampeners for the market, it can continue to take heart from the fact that there has been a definite uptick in the number of rental transactions for the last two years.

There are analysts who feel that it is too early to panic and the trend of oversupply could only be temporary. Some even feel that tighter net supply over the next few years could keep the prices competitive and the buyers interested. This could eventually lead to a turnaround in rental prices, too.

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