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Good demand from expats, but rents still have some way to go before reaching highs of 2000

Residential rents in Singapore have rebounded by double-digit figures since the market bottomed out two years ago, but they still have some way to go before reaching the high levels achieved in 2000.

The present market recovery in residential leasing is led by the luxury segment, data shows. Rents for high-end properties have rebounded faster than rents for the rest of the market - and market players attribute this to good demand from the expatriate crowd.

Data from property consultancy CB Richard Ellis (CBRE), which monitors a sample of properties in each segment to calculate average residential rents, shows that while average rents for luxury properties have climbed 17.1 per cent since the second quarter of 2004 - when the residential leasing market hit rock-bottom - rents across the whole island have increased by a smaller 13.9 per cent. And rents in what CBRE terms the ‘prime’ category, which is slightly more low-end than the luxury category, have also increased by a comparatively lower 13 per cent.

Average rents for the luxury segment grew from $3.50 per sq ft per month (psm) in the second quarter of 2004 to $4.10 psm in the second quarter of 2006. Rents for the prime segment grew from $2.30 psm to $2.60 psm, while islandwide rents climbed from $1.58 psm to $1.80 psm.

Observers say that the rental uptrend is in line with the general recovery and strengthening of the economy. But they also agree that upward price movements - especially in the high-end segment - are aided by expatriate demand. ‘The continued rental uptrend . . . is an indication that there is strong expatriate demand for quality rental housing, as well as some signs of improvement in the budget for housing,’ CBRE’s associate director for residential services Teresa Tso said.

Wallace Chu, senior manager of Savills Singapore, agrees with the assessment. ‘One reason for this is that a lot of expats are coming in,’ he said.

According to Savills, more senior executives are relocating to Singapore with higher housing allowances of $15,000 per month and above, and these executives usually look for larger units and detached houses in prime districts.

But recent figures released by the Urban Redevelopment Authority (URA) show that rents are still below their recent highs in the third quarter of 2000 for all types of private properties - non-landed apartments, terrace and semi-detached houses, and bungalows.

Present market sentiment believes that there is still a bit of time to go before prices draw on par with their highs in 2000, and one reason for this is that multinational companies have not been too quick to increase their housing allowances for the people they have brought into Singapore since the property downturn began. ‘While companies have adjusted expatriate housing budgets upwards since late 2005 in response to the upward market movement, many are keen to look into localised packages for their expatriates with a view to managing fixed costs whenever possible,’ said CBRE’s Ms Tso.

In a departure from URA’s statistics, CBRE’s data shows that islandwide rents have recovered to even exceed their 2000 high, while rents in the prime and luxury segments have almost reached the 2000 levels. CBRE said, however, that its sample size is much smaller than that used by the URA, and that calculation methods also differ.

Another effect of the expatriate demand is that properties in the two parts of Singapore more popular with the expat crowd - the Central and East regions - are seeing good rent growth. Looking at apartment and condominium rents across Singapore, Ms Tso said: ‘While these rents have on the whole improved islandwide, some regions have nevertheless moved ahead of the pack.’

As for rents outside the high-end segment, market watchers think that it will not be too long before a supply crunch means that increasing rents in top-tier properties filter down to the rest of the market. For example, demand for landed properties is expected to go up at a time when the number of such properties remain in short supply. This means that house-hunters may start to look at smaller properties, pushing up prices.

Source : Business Times - 7 Aug 2006

Property prices relatively low but rents are good due to proximity to downtown area

GEYLANG may not be the first place that comes to mind for home buyers looking to settle down in a quiet area.

But its infamous reputation has ironically helped to make some properties there a good investment: Rental yields there can be almost double those in surrounding areas.

These yields, an indication of the value owners get out of renting out their properties, are calculated as a ratio of the annual rents earned over what the buyers paid for the properties.

The relatively low prices for properties in Geylang, coupled with the attractive rents they get, mean good yields.

The fact that Geylang is just a stone’s throw away from the downtown area is a big selling point to many looking to rent, said property experts.

‘The demand comes from foreigners and working singles who like the proximity to their offices in Suntec City,’ said Mr Mark Teo, group division director of property agency ERA Singapore.

He added that ‘properties in Geylang still command a good rental price’.

Rents in Geylang are comparable to nearby Katong and East Coast - about $1,800 to $2,000 for a two-bedroom flat and $2,000 to $2,200 for a three-bedder.

Because home prices in Geylang are lower, annual rental yields, which are between 3 and 4 per cent for Katong and East Coast properties on average, can go up to 7 per cent in Geylang, property agents said.

For example, Mr Tan, an investor who declined to give his full name, enjoys a 7 per cent rental yield on his unit at Wing Fong Mansions in Geylang Lorong 14, which he bought for $350,000.

‘The apartments here are cheap and the rental price is good,’ he said, adding: ‘Apartments in other areas cost more than $400,000.’

A check of seven properties situated between Lorong 28 and Lorong 40 in Geylang found that the average price per sq ft (psf) is $441, compared with an average of $520 psf in nearby The Legenda in Joo Chiat, Dunman View and Haig Court.

That translates into rental yields of 5.2 per cent for Geylang properties, at least 1 percentage point higher than Katong and East Coast homes, which can cost up to $700,000, according to Mr Eric Cheng, senior division director of PropNex.

However, investors hoping to get financing for their home purchases should bear in mind that some banks may be reluctant to give loans for certain areas in Geylang for fear that they may face difficulty selling these properties in the event of a default and repossession.

But that does not bother some investors like Mr Tan.

‘I’m not worried about not being able to sell the apartment because the rental return is good,’ he said.

‘For properties, as long as the price is good, location doesn’t matter.’

Source : Sunday Times - 6 Aug 2006

Increased demand from relocating expats, prime districts most popular

THE number of residential leasing transactions increased to 8,807 over the first three months of this year. This represents a 15.8 per cent increase compared to the same period last year when the number of transactions was 7,599.

And according to Savills Singapore senior manager Wallace Chu, there have been 3,284 leases registered in April and May so far. ‘These are just the preliminary numbers and I am confident the final figure for Q2 could top the previous quarter,’ he said.

Mr Chu said that Districts 9, 10, 11, 15, 16 and 21 are the most popular residential districts among lessees. An analysis based on the latest full-year figures in 2005 by Savills revealed that District 10 registered the most leases - 17 per cent or 5,887 out of a total of 33,874.

District 15 - which includes Katong, Joo Chiat and Amber Road - came in second with 3,872 transactions, beating District 9’s 3,474 leases. Mr Chu said one explanation for District 15’s popularity could be the sheer number of developments there.

The most expensive homes for rent are in District 10 with developments like Ardmore Park, Spring Grove and The Wilby Residence fetching average rents of $48.64 psm pm, $32.17 psm pm and $34.12 psm pm (as of Q1 2006) respectively.

The Bayshore, costing $17.24 psm pm in District 16, had the most number of units leased - 75 units. Valley Park ($26.99 psm pm) in District 10 had 71 units leased and Aspen Heights ($30.08 psm pm) in District 9 had 66 units leased.

Rents also depend on the age of the development, and Mr Chu noted that the rental gap for developments less than five years old and those older than five years has ranged between 33-38 per cent for the last seven quarters.

Mr Chu said that the increase in leasing activity is due in part to the number of expatriates in Asian countries like Hong Kong and Japan relocating to Singapore. ‘They come from sectors like banking and R&D,’ he said. Based on Savills’ own data, Mr Chu said that these expatriates are senior executives with housing allowances of at least $15,000 per month.

With increased housing allowances, Mr Chu said that expatriates are looking for larger apartments and landed property.

He said that the volume for detached and terrace houses was 20 per cent more in the first quarter of this year than in the first quarter of 2005. He added that apart from the prime districts, landed property in Districts 15 and 16 were also popular with expatriates.

Those keen on buying property as an investment will be interested to know that gross rental yields are on par with Hong Kong at between 3.5-4.5 per cent. Those with a higher appetite for risk may want to consider China; Mr Chu said yields in Shanghai are 7-8 per cent.

Source : Business Times - 18 Jul 2006

But retail sector enjoys healthy leasing demand and sales: study

RENTS and capital values of industrial space have remained flat, while demand for prime retail space grew in the second quarter, according to a recent report.

Property consultancy group CB Richard Ellis (CBRE) said in its report that the average monthly rents for prime factory space remained at $1.25 psf and $1.00 psf for ground and upper floor units respectively, while average capital values for freehold factories were unchanged at $332 psf for ground floor units and $270 psf for upper floor units.

This was unlike the previous quarter where average monthly rents rose by $0.05 psf and capital values grew by 2 per cent.

Average monthly rent for high-tech space also stayed at $1.85 psf in the quarter after rising 5.7 per cent previously. The average occupancy rate continued to rise from 88.1 per cent in Q1 to 90.1 per cent in Q2 as more companies set up research and development centres.

Average monthly prime warehouse rent remained at $1.25 psf for the ground floor units and $1.05 psf for upper floor units. Similarly, average capital values for freehold warehouses were unchanged at $385 psf and $335 psf for the ground and upper floors respectively.

Taking into account the strengthening economy and positive outlook, CBRE expects the rents for all industrial space to rise by a further 1.0 to 1.5 per cent by year end.

In the retail sector, CBRE notes a healthy leasing demand and active retail sales in Q2. The commitment of retail space in the various new developments that are slated to open in the second half of the year showed that leasing demand during this quarter is still going strong.

The CBRE islandwide prime retail rental index increased by 0.7 per cent from the previous quarter, which it largely attributes to rents in the City Hall/Marina Centre area. Rents there rose by a higher 2.5 per cent, due partly to the increase in rents at the newly renovated Marina Square and Suntec City, which is being upgraded.

Prime rent in Orchard Road rose 0.9 per cent to $33.60 psf a month while suburban prime rent remained at $27.20 psf a month. CBRE also observes that the Marina Bay Integrated Resort (IR)’s Marina Bay Shoppes could add a potential 117,100 sq m of retail space when the IR is completed in 2009.

In the government land sales programme, Somerset Central was opened for tender this quarter and will close on Aug 16. At least 60 per cent of the maximum GFA of 39,419 sq m is required to be retail, F&B and/or entertainment. And this could yield close to another 18,590 sq m of retail space, said CBRE.

CBRE also notes the possibility for the Somerset Centre site, the Orchard/Killiney Road site and the existing Specialists’ Shopping Centre to be developed together to leverage on the Orchard Road frontage. Hence, CBRE expects aggressive bidding by developers as this is possibly the last remaining prime space site along Orchard Road.

Overall, CBRE sees a positive outlook in the retail market. ‘Landlords will continue to benefit from rising rentals, particularly those in the Orchard area, in view of the fact that the bulk of new supply will only come onstream in 2008 and 2009,’ said CBRE.

Source : Business Times - 13 Jul 2006

Lack of new office space supply in prime areas causes rents to go up

OFFICE rents, which are on a upward trend, show no sign of softening, says Knight Frank in a report on Singapore’s office market. The property consultancy expects office rents to increase in the second half of this year by as much as 10 per cent for Grade A buildings in the prime area, and by 4 to 6 per cent on a islandwide basis.

Knight Frank attributes the expected rise to a shortage of new office supply in the prime Central Business District (CBD) area. ‘With supply staying at stubbornly tight levels in the face of healthy demand, office rents will remain on course to ride the upward trend,’ the consultants say.

‘The second half of 2006 is likely to witness another period of sustained rental appreciation.’

One consequence of the rising rentals is that some firms in the CBD are considering relocating to the fringe areas, the report says.

In the recently concluded second quarter, rentals across all aspects of the office market moved upwards in unison, Knight Frank’s report showed. Grade A office buildings remain highly sought-after.

Average rent levels for Grade A office buildings in Raffles Place grew by 3.8 per cent quarter-on-quarter to $6.10 psf while the nearby Shenton Way and Robinson Road rose by 3.5 per cent to $4.50 psf. Prime office rentals in the Suntec, Marina Centre and City Hall area also witnessed a rise of 4.3 per cent - to $5.50 psf.

The Orchard Road shopping belt continued to command high office rentals at $5.90 psf, 1.0 per cent higher than in the first quarter of the year.

Suburban office rents saw less upward pressure.

Knight Frank says that the outlook for office landlords remains bright as a result of strong demand - due to the rosy economic prospects of Singapore as well as the bullish sentiment in the banking and finance sector.

Increased demand for office space in the second quarter was fuelled by financial institutions. Reuters and Credit Suisse are expanding, and US investment bank Merrill Lynch also decided to set up a major global support operations in Singapore.

‘The wave of new financial institutions setting up back offices and existing ones expanding their operations looks set to continue,’ the report says.

‘With the International Monetary Fund and World Bank meetings ready to be held in Singapore during September, there could be positive spillover effects into the finance sector.’

Source : Business Times - 4 July 2006