The 3 Most Important Factors That Affect Rental Demand In Singapore
The increase in supply and a weak employment market has increased pressure on rental prices of late, but there is still some underlying demand in the private property rental market here in Singapore.
Indeed, vacancy rates, which hit a 15 year high in 2016, has seen some improvement at the end of the 2016 fourth quarter, the second consecutive quarter of improving (i.e. lower) vacancy rates. While the vacancy rate still sits above the historical average of 6.6%, the marginal improvement is an encouraging data that implies potential moderation in the decline in rental rates.
Positive sales data in the last month could also signal an increasing appetite by property buyers. In fact, sale of new private homes has defied expectations, rising to a near 4-year peak in March this year. Similarly, private non-landed home resale transactions surged 51.8 % in March from a month ago, while prices inched up by 0.5% in a fifth straight month of increase. These positive news may signal that the market is bottoming out and that it could be the right time for interested investors to start looking. For those planning to invest in a rental home, it is important to understand what drives rental demand because you do not want to be stuck with a vacant, untenanted unit.
A common question among property investors, and even for property developers is – what makes a particular property attractive to tenants?
There are in excess of 2,500 private condos and apartments in Singapore. As rental demand are driven by many factors (including factors which are specific to individual properties) we evaluated a cohort of the top 200 rental properties in Singapore. These are the properties with the highest rental demand, based on average annual rental volume over the last 5 years.
This is what we found…
1. Rental Demand is equally Robust Outside the Central District
It is a common misconception that there is limited rental demand or liquidity outside of the city centre. In other words, our study showed that it is possible to find properties with good rental liquidity outside of District 9, 10, 11 and outside the CBD; where rental rates are equally attractive.
There are lots of reasons for this – less crowded neighbourhood outside the central region, cheaper food and amenities, proximity to schools for those with kids, or even proximity to work place for those who are working in other industrial areas or business parks (e.g. Changi).
So instead of shelling out higher prices for properties in the central region, you can easily get properties with good rental demand in other parts of Singapore.
2. Age of the property matters
Older condominiums might be bigger, but our data shows that newer properties have higher rental liquidity. In fact, 80% of the top 50 most liquid rental properties are those that TOP-ed within the last 5 years.
The implications? Property investors should focus on new launches instead of resale units because they have much better rental liquidity.
3. Access to Supermarket, Malls and MRT drives demand
We all know that location is an important factor when it comes to renting a place. But the definition of “convenience” varies from one person to another. Our analyses suggest that access to MRT and malls are important for rental liquidity. But what was somewhat surprising even for us, is that access to a nearby Supermarket mattered even more.
60% of the top 200 most liquid rental properties are located within a 10mins walk to an MRT station or within 15mins walk to the nearest mall. Among the top 200 rental properties studied, 70% are within a 15mins walk to the nearest NTUC, Sheng Siong, Cold Storage or other supermarkets.
While rental prices have come under pressure, landlords who find themselves invested in high-demand rental properties and are flexible in their rental rate expectations may continue to benefit from demand in the rental market.
It is certainly worth visiting the new launch showflats over the weekends and do ask about upcoming MRT stations and nearby supermarkets ;p
And here’s some of the new launches worth checking out