_Rent or Buy Homes in Singapore
Alice: Hi, good day everyone! Welcome to our Buy or Rent Homes series. I'm Alice, and here with me is Leonard. Today we want to talk about this topic because it’s on the minds of many home dwellers who have wondering whether they should buy homes now, or rent for the long haul.
Leonard has done quite a lot of interesting analysis about the buy or rent story, and we want to talk about how the rental market has been performing. Leonard, ever since the pandemic, there has been a huge surge in rental demand due to the shortage of newly completed homes. That seemed to slow down this year. How has the rental market been performing for the last nine months this year?
Leonard: I think that's how the public perceives things. But if we look at what has been happening over the last six years from before the pandemic, from 2018 to 2023, every year there's been an average of 83,000 to 86,000 homes being leased—with the highest in 2021, with that being a bounce back.
We are on the road to recovery from the pandemic, as there are people who need a temporary home because of construction delays, while some Singaporeans were coming back from overseas. Slowly, when borders reopened, more professionals started coming back.
The world was still slightly unpredictable; a lot of these professionals wanted to come to Singapore because it is a modern city, with modern infrastructure, and it's a fairly safe environment. Because of that, the overall housing market was really overstressed, because while demand increased on the back of recovery, there were construction delays and supply still playing catch-up with demand. Therefore, rents shot through the roof.
Going forward, we are reaching a point of stability. In the first nine months of the year, there were about 62,000 to 63,000 rents in Singapore inked. So, we are on track to finish the year with about 83,000 leases.
Alice: Wow, that's quite a high annual lease volume. What was last year's lease volume like?
Leonard: It was lower, below 80,000. I think that has something to do with foreigners who come into Singapore to work and to live, and maybe put down roots here. However, until they get some kind of residency status, it's a bit hard for them to buy property because of the very prohibitive 60% Additional Buyers Stamp Duty rate for foreign buyers. So, they really have no choice but to rent for the moment.
Alice, what do you reckon are the most popular districts for rental?
Alice: Would it be district 1, where most people are working here so they may want to live near where they work? Or, or could it be the prime Orchard Road area?
Leonard: It is the prime Orchard Road area. District 9 in Orchard Road and District 10, which is the Bukit Timah/Holland area, are the most popular, at least in the first nine months of 2024. There are more than 5,000 leases each in these two districts, and the close third is District 15. This is the East Coast enclave, which includes the Marine Parade and Katong areas, and they are just under 5,000 leases.
What type of size units do you think people are going for these rentals?
Alice: It appears to me that ever since COVID, everyone desires to have a bigger space so that they can work, and live, as well as rest in the same space. It is likely that the bigger units enjoy greater demand. Is it those that span 1,000 square feet?
Leonard: Yes, family size units are the ones that are more popular.
Alice: Wow, that's why Districts 9, 10, and 15 are places where families like to live, to be near schools, recreational amenities, as well as places of work, while still being in city fringes or the central region.
Leonard: Yes, they are close to town, to the CBD, and employment centres.
Alice: How about smaller units? Would they still see a fair bit of demand since Covid?
Leonard: Since the completion of 22,000 new units from the whole of 2023 to the first half of 2024, a lot of them tend to be small. So that is amply supplied into the market, while demand is still more leveraged towards family size units. There is some stress or pressure for smaller size units to find occupiers and to keep the space filled.
Alice: That would mean it might be harder to sell one-bedders in the resale market if these co-owners of one-bedders are looking for investment objectives. With rentals not as strong compared to pre-Covid, there might be a weaker demand for these small units. Would two-bedders be in higher demand in comparison?
Leonard: It seems like one-bedroom units are more in demand than two bedders, and family size units are the most in demand. All is not lost for one-bedders because there is demand, despite more competition for space. I don't think they will have that much trouble selling, because being a smaller unit, the quantum is lower, so there is still enough opportunity in our kind of market to sell them.
Alice: That will also mean there's still some demand for one-bedders, especially in the city sector where there might be singles, or even DINKS (dual income, no kids) family units looking for one- or two-bed units in the heart of the city, so they can experience city life. There will still be some demand for rental, especially for smaller units. Different unit sizes will cater to different user needs.
In the last 18 months, we have seen more than 20,000 new non-landed homes being completed. That's an astounding number! Leonard, what do you think has been the rental trend in Singapore so far?
Leonard: As we were talking a bit earlier, construction efforts are trying to catch up with demand. In 2022, rent shot up almost 30%. But as more homes were completed in 2023, the rate of rental increase eased to about 8.7% in 2023, and in the first nine months of 2024 were in negative territory.
Rents have come down because supply has finally caught up and equalized with demand, and so we are in a comfortable level now.
Alice: Oh, wonderful! When it comes to different districts in terms of rentals, we observe from Knight Frank research that Districts 9 and 10, which are also the most popular districts by rental volume, saw rentals in District 9 at $5 range on a per square foot basis. Rentals have been between $6,700 to $7,700 per month, and that's quite a high rental quantum, but that is also because units in District 9 are family size units.
Leonard: And that is the same for District 15, which is in the east.
Alice: Right! For District 15, it seems the rentals are also quite comfortable below the $6,000 or over-$5,000 range, and I think for a family of three or four, this is quite a healthy rental quantum. Would that mean more people will find it palatable to rent than to buy?
Leonard: I think it's also part of Singapore’s culture. Right now, we're not seeing this in the statistics, so it still seems Singaporeans prefer to buy. That's really validated by our high home ownership rates. I think we are among the highest in the world, and that will continue to trend, even as society changes, and as we progress, and levels of affluence continue to rise.
I guess you will have more young professionals who would want to move out from their family homes and live on their own as a mark of their own independence.
Alice: That's true, because I see that young people are more mobile and desiring independence, even before they have the financial ability to buy. They could be renting first for some time, and some of them could be wanting to still rent in a city centre area. Do you see that the Core Central Region has the most expensive rents so far?
Leonard: Yes, the rents there are high, at least on the per square foot basis in Districts 1 and 2 which includes Raffles Place and Tanjong Pagar, and District 6 which is the City Hall and Beach Road area. Rents can range from anywhere between $620 to $920 per square foot per month.
But, on a whole quantum basis, because these are smaller units, they tend to hover in the $6,000 a month range. While these are a bit more affordable, they're also smaller units, catering mostly to singles. I think maybe a smattering of them are local Singaporeans or local young Singaporean professionals. For the most part, these units still cater to foreign professionals coming to Singapore, to this part of the world to work in a cosmopolitan, gateway city.
Alice: It’s very telling from your analysis that there's quite likely a lot more foreign professionals renting in the Downtown Core area, because we also see that we have a lot more workers, especially in the professional level, with our population exceeding six million. I guess that works well for our residential markets, especially for the rental market. Do you see the rental index climbing back up next year?
Leonard: I think we've reached a sweet spot, because what's good for the market is stability, and there is a balance between landlords and tenants, where one doesn't overpower the other. I think, going forward, we are in a good place, at least for the year ahead.
Alice: It's good news, indeed, that rentals have stabilized. We certainly have more residential options for both local Singaporeans staying here, as well as foreign expatriates, who now have more choices for places to rent.
To read more Knight Frank research insights about the residential, commercial and industrial markets, click here.
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