Singapore’s residential supply overhang now ‘purged from the system’

Private residential rents are now expected to decline by 2.5% this year.

In a recent report, Savills analysts noted that Singapore’s overhang in supply arising from the 19,968 private residential units (excluding ECs) which were completed in 2023 have been largely purged from the system.

In Q1/2024, only 241 units were completed. According to Savills, this greatly helped the market absorb the overhang in the previous two quarters when 8,517 units and 4,085 units were completed in Q3 and Q4/2023 respectively. The completion numbers in Q2/2024 were also low, at 1,882 units, further helping to ease the indigestion from the supply in 2023. For 2024, about 9,100 units could be completed and this rapid climbdown is probably the main reason for the turnaround in rents.

Here’s more from Savills:

Although rents have turned the corner, we believe that the upside will be capped by several factors, chief amongst which is the climb back up to 3,000+ per quarter unit completions. This will increase the competition level for potential tenants. Also, when EP holders found private apartment rents beyond their budget in late-2022 to end-2023, they sought out co-living, room rentals or HDB flats.

With private rents having softened most may already have moved to personal private unit leases. The demand from this group may start to ease in the coming quarters. Lastly, as more companies are moving their shared services off shore, the demand from foreigners working in this sector of the economy is expected to weaken.

While companies continue to cost-cut by reducing staff numbers, this will in turn lead to fewer hiring of EP personnel, however, landlords are now paying higher property taxes and this may lend some support to the rental market. Also, inflationary pressure is driving up conservancy charges, giving landlords another reason not to give in to low ball rental offers.

We had anticipated an end to the slide in rents towards the end of the year. However, given the fact that it came early in Q3/2024 we now amend our forecast of a 5.0% YoY decline in rents to a 2.5% drop. For 2025, rents are expected to drift sideways as businesses face headwinds and continue to watch labour costs.