Two reasons why Singapore residential rents could decline by 5% in 2024

One is the large number of new completions this year.

Although in Q3/2023 Singapore rental indices showed that overall, rents are still rising, analysts at Savills have been getting increasing feedback since July, that rents are transacting below peak Q1/2023 levels. 

“This has been the frequent narration for the CCR and most parts of the RCR and OCR. We believe that the inflexion point for rents came sometime in August and is presently permeating through the island,” Savills said in a report.

Here’s more from Savills:

Evidence that not all rental districts are thriving is seen in the graph below where, after weeding out outliers (these are QoQ rental changes which equal or exceed two standard deviations), it shows that of the 27 districts with rental transactions recorded in Q3/2023, 15 were still rising on a QoQ basis while 11 registered a negative change. 

The average rental increase for the districts that showed rental growth in the third quarter was 1.3% while for those which fell, it was a negative 2.4%. (We are taking the average of the 25th, 50th and 75th percentile for 1-bedroom to 5-bedroom units for each district.)

The graph below shows that of the three regions, the CCR registered the greatest rental QoQ decline of 0.48% while the RCR fell by 0.4% and the OCR by 0.07%. Owing to the lower rents for the latter, the significantly higher rents asked by landlords during rental reviews for developments in the CCR and RCR have pushed tenants to the OCR. Against this backstop, rents for mass market non-landed properties have remained resilient thus far. 

For 2024, we are forecasting a general rental decline of about 5%. Two reasons account for this. One is the 17,000 new completions in 2023 with another 9,900 units expected next year. If landlords of the 2023 vintage of completed stock are willing to bend towards potential tenants asking rents, rents will likely decline but the positive side is that the vacant stock of this year’s new completions should be soaked up within a quarter or so. 

Vacancies will then fall back to 7%+ levels. The 9,900 units expected next year would then be able to accommodate those who, because of the high rents, moved out of single private units to room lettings, to rent a unit. 

The other reason for the decline is external. With economic headwinds blowing in Europe and Asia, most multinational companies will be extremely cost conscious, and this will cascade down to the number of foreign workers they may wish to quarter in Singapore. For 2023, given the strong showing in the first half of the year, non landed rents are expected to rise 10% YoY.