If you are looking to lease an apartment in the current market, chances are you will be paying a much higher rent compared to a year ago, as rental demand outpaces supply of units listed for lease. Read on to find out more about the rental hikes and what tenants should look out for.

Why are rentals climbing?

Several factors have contributed to the strong private home leasing market. Private condo rental demand has been supported by the return of foreign employment, tenants who choose to rent while waiting for their new homes to be completed, and possibly some who opted to rent having been priced out of the housing market. On the other hand, with the rising home prices, some owners could have sold their property to capitalise on the capital appreciation upside and decided to rent in the meantime as they review their real estate plans.

In addition, some co-living operators have also been active in the condo leasing market, renting units for their co-living offerings. These various sources of demand have propped up rental rates. Notably, some expats may be more willing to pay higher rental rates to secure the unit, thereby pushing up rents in the process.

Based on URA Realis data, the average monthly rentals have risen sharply across the board from the April to May 2021 period to the corresponding months in 2022. Rents rose the most in the 5-bedroom category, posting a 39% YOY increase to $12,951 on average in April and May 2022.

Meanwhile, the 1- to 4-bedders private condos saw rentals growing by 14% to 16% in April and May 2022, compared to the same period a year ago (see Table 1).

Do note that these are average numbers and individual leasing transactions could see very different rental hikes. For instance, feedback from PropNex agents suggest that it is not uncommon for landlords to ask for 30% or 40% higher rents amid the strong leasing demand.

Table 1: Average Monthly Rents of Non-Landed Private Homes

Source: PropNex Research, URA Realis (data retrieved 4 July 2022)

Given the tight availability of rental stock, it should be expected that rentals could stay elevated, with the likelihood of rising further in the remaining of the year. Meanwhile, inflationary pressures and rising interest rates may have some impact on rents if landlords choose to pass on the cost increase to tenants.

Which are the popular Districts?

Rental volume remained healthy in the first five months of the year with 34,306 rental contracts – albeit slightly lower than the same period in 2021 at 36,942. Leasing demand is expected to remain sustained for the rest of 2022. However, the limited stock of homes for rent may curtail the pace of growth in transaction volume.

Rental demand appears to be firm across the market segments. Market observations suggest that expats – possibly with higher housing budget – are favouring larger homes in the city centre and city fringe, particularly those in convenient locations near MRT stations and amenities.

Table 2A: Top 10 Popular Districts in terms of Rental Volume (Jan-May 2022 vs Jan-May 2021)

Source: PropNex Research, URA Realis (data retrieved 4 July 2022)

The most popular districts are largely those in the CCR and RCR, with District 9 being the most popular followed by District 10 (see Table 2A). While there was a drop in rental volumes for the first 5 months in 2022 compared to the same period last year, this was probably due to the tight supply of units available for rental owing to the exuberant leasing demand. Median rentals of these popular districts have also risen by 10% to 15% over the past year (see Table 2B).

Table 2B: Top 10 Popular Districts’ Median Rental (Jan-May 2022 vs Jan-May 2021)

Source: PropNex Research, URA Realis (data retrieved 4 July 2022)

Tenants take note!

The delays in project completions, coupled with still healthy demand have driven up rentals. It is now a landlord’s market and many rental listings typically see a steady stream of enquiries within hours of posting. This pool of ready tenant demand has seen landlords holding on to their asking rents, with little room for negotiation. Landlords are also pickier about who to rent the unit to as they know that there are many other interested parties in line.
Here are some tips for renting in today’s competitive market:

1. Work out your budget in advance. Know what you can afford for rent after reviewing your monthly expenses and savings.

2. Have a plan based on needs and priorities. Make a shortlist based on preferred locations, type of property, accessibility and amenities nearby, unfurnished/partial/fully furnished and required lease term.

3. Do some research. Work with a property agent to assess recent rental transactions and potential supply available.

4. Have ready cash on hand for good faith deposit (also known as booking deposit) – which is usually one month’s rent – payable upon signing the Letter of Intent. Set aside security deposit, typically one month’s rent per year of lease committed.

5. Keep in mind there is a rental stamp duty payable. If the lease period is 4 years or less, computation of stamp duty is 0.4% of total rent for the period of the lease.

Having all the necessary information and cash ready on hand will be important in a fast-moving “you-snooze-you-lose” market. Getting an experienced, reliable, and knowledgeable property agent to source and negotiate on possible deals is also recommended.

Leasing market not losing steam

PropNex Research remains cautiously optimistic about the residential property market in Singapore, including the home leasing market. Generally, Singapore’s GDP is still projected to grow by 3% to 5% in 2022 (at the time of writing) and economic conditions as well as the labour market are still healthy. However, some downside risks to watch will include rising inflation leading to rate hikes around the world, slower global growth, and supply chain disruptions.

For the whole of 2021, rentals of private residential properties increased by 9.9%, according to the URA’s Rental Index of private residential properties. Rents are expected to climb at a similar pace, if not faster in 2022.

This article is first posed on PropNex website on 6th July 2022, here.