Residential landlords are advised not to rely on the expansion of Chinese tech firms in Singapore such as Tencent and Alibaba to fill the growing number of empty homes, as experts believe that it is still too early to predict how many foreigners they will bring here.
Analysts expect 2021 to be a tough year for private residential landlords as vacancy rate is forecasted to rise 8% to 9% for the entire year, reported The Business Times (BT).
This comes as more foreigners lose their jobs within the city-state and tenants’ rental budget are slashed.
For the whole 2020, vacancy rate is estimated to have risen to 7%.
At the end of third quarter of 2020, vacancy rate stood at 6.2%, with 23,171 vacant private residential units (both landed and non-landed). The figure was up 5.4% from Q2 2020, which registered 20,182 vacant units, said the BT report.
Alan Cheong, Executive Director at Savills Singapore, expects luxury homes to be hardest hit as rents fall 2% to 3% for 2020 and by another 3% to 5% in 2021.
The Core Central Region (CCR) saw rents of non-landed properties drop 2.1% from Q2 2020 to Q3 2020.
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“The vacancy rate for 2020 is estimated at about 7%. For 2021, we estimate a vacancy rate of 8% to 9%,” said Cheong as quoted by BT.
Cushman & Wakefield’s Associate Director of Research Wong Xian Yang sees a 6.5% vacancy rate for 2020.
“Despite poor economic conditions, we don’t expect vacancy rates to rise sharply given limited new supply due to construction delays due to the pandemic situation. Only around 3,000 new residential units are expected to complete in 2020,” he said as quoted by BT.
Wong expects vacancy rate for 2021 to stand at around 7.5%, given the hike in supply and muted demand on the back of air travel restrictions and poor economic conditions.
He anticipates rents for private non-landed homes to drop by around 0.5% for the entire 2020.
“For 2021, we expect the decline in rents to continue, albeit gradually, given limited supply of new units in 2021. Overall rents could fall by -2 per cent to -1 per cent in 2021,” said Mr Wong.
OrangeTee and Tie Head of Research and Consultancy Christine Sun described the private residential market as one of the ‘greatest casualties’ of the COVID-19 pandemic.
BT reported that residents were less vulnerable to redundancies than foreigners due to the strong government support provided to local employees.
“New foreign employment shrank significantly amid a grimmer hiring outlook,” said Sun as quoted by BT.
Based on Ministry of Manpower data released in December, the total number of people working, excluding foreign domestic workers dropped by 158,700 from January to end-September. Of this, non-residents accounted for 139,100.
In Q3 2020 alone, the drop in non-resident employment were most evident in manufacturing, construction, transportation and storage as well as administrative and support services.
While it is the government’s policy to attract certain skilled workers, such as in the pharmaceutical and IT industries, such workers are also in demand in other countries, said ERA Realty Head of Research and Consultancy Nicholas Mak.
Residential landlords should not rely on the expansion of Chinese tech firms in Singapore such as Tencent, Alibaba and ByteDance to fill the growing number of empty homes.
This comes as it is still early “to predict the outcome as to how many foreigners Chinese tech and social media companies will (bring) to Singapore”, said Cheong.
“Chief amongst which is the question of why spend so much more on staffing and accommodation costs when work can be done from China and then electronically dispatched out?” he noted.
“Presently, it seems that there is a lot of hype and people are putting the cart before the Chinese tech horse. All this could end in disappointment,” added Cheong.
Sun said the proportion of mainland Chinese tenants in Singapore are sizable, with their income range quite wide and their budgets quite varied.
“It also depends on whether they are here for study or work,” she said as quoted by BT.
As expats downgrade, Cheong expects rents in the Rest of Central Regions (RCR) for 2020 to remain flat.
“However, with more new completions in 2021 and the trickle down effect of rental budgets being slashed, rents for the RCR in 2021 is expected to fall by 3%,” he said.
The Outside Central Region (OCR) is the only region to perform well, with rents increasing 1% quarter-on-quarter in Q3.
“Rents in the OCR in 2020 is forecast to rise 2% as this region is the backstop for all those who wish to rent private residential properties. For 2021, we also expect rents in the OCR to rise, albeit marginally by 1% to 2%,” said Mr Cheong.