BankBazaar Singapore – January 20, 2018
Singapore: A recently released RHB research report which has predicted a substantial rise in the number of empty homes in Singapore could make the real estate market cautious and the rental market jittery amid growing optimism.
According to a chart from RHB Research that has been published by Singapore Business Review, the number of empty homes in Singapore is likely to touch 11,271 by 2021 against a fall in home stock under construction projected to be around 20%.
Despite rise in private property prices as indicated by the flash estimates released by Urban Redevelopment Authority (URA) for Q4 2017, this news could further dampen the mood for landowners struggling to see better returns on their property investments due to muted rental prices over the last few years. This may further crimp the ability of homeowners in Singapore to service their debts.
The report also notes that the number of homes expected to enter the market in 2018 and 2019 is 7,893 and 8,696, respectively.
The number of private homes that entered the Singapore market in 2016 and 2017 was 20,516 and 16,898, respectively. While a steady home supply and increase in the private home price index may suggest that the market is now completely out of the doldrums, high vacancy rates remain a worry for the market.
Although the Singapore government had introduced certain market cool-off measures in 2014 to curb recklessness that was taking over, it has now started to affect the mood of investors.
The Singapore Business Review report said that the vacancy rate at the end of Q3 2017 stood at 8.4%. Market predictions indicate that it will continue to increase as the market struggles with oversupply.
This can rise to worrying levels in 2021 as Singapore continues to struggle with the new GDP normal of 2-3% annually against a normal of 6% seen a few years back. With cooling measures, lower oil prices and tighter immigration controls to stay in effect in the foreseeable future, there is no chance for recovery in rental prices anytime soon.
Vacancy rates, going forward, may rival the figures seen during the height of Asian Crisis in 1998 when private property prices had plunged by almost 34% y-o-y.
After years of decline, the price index for private homes in Singapore turned positive, registering a 1% increase in 2017 as per URA early estimates. However, experts have warned that lower home valuations and high vacancy rates mean that investors shouldn’t expect the same level of appreciation and rental income seen during Singapore’s high-growth periods.
The divergence between property prices and rentals will continue for some more years till the supply cools down and growth momentum returns. Experts have cautioned potential investors looking for short-term gains against entering the market, as low rentals or vacancy could mean negative cash flow from a property and high debt burden.