Property News, Rental News

Why vacancy rates are high in the rental market

July 24, 2017
keys rental market

Source: Pixabay

Imagine if, for the past 10 years, you’ve enjoyed a nice, steady rental income stream that paid for your properties, and left you with a little extra cash. You could’ve been planning for a comfy retirement with one long vacation a year, or you might have been looking forward even to buying a property abroad. Then one day, it all came crashing down, and all your vaunted assets became money leeches that made your life hell.

Vacancies in the rental market are starting to climb in Singapore

As of 30th June, there were 30,310 vacant private homes in Singapore, and an overall vacancy rate of 8.9 per cent.

International Property Advisor has estimated that island wide vacancies could reach as high as 11 per cent, by end 2017. The North-East region (Punggol and Sengkang) has the highest vacancies rates as of Q2 2017, at 12.6 per cent, while the Eastern end (Pasir Ris and Tampines) follows closely at 9.1 per cent.

Vacancy rates are expected to strike suburban areas first. This is par for the course in almost any property market (there is simply more supply in suburban areas as opposed to central areas).

Why is the rental market still soft and vacancies high?

It’s due to a conjunction of three main factors we will explore below.

  1. Fallout from the economic situation in 2015 and 2016

The main culprit was the big slump in oil prices in 2015 and 2016. Saudi Arabia, engaging American shale oil companies in a price war, caused oil prices to fall below sustainable levels – at some points going below US$40 per barrel (this means selling at near cost, or even a loss for many companies).

With massive defaults from companies like Swiber, and loss of business in the oil and gas sector, expatriate packages and housing allowances shrank. This later spread to the finance sector, which has a closer than comfortable correlation to energy companies (most energy companies are highly leveraged, so their bankruptcies are devastating to banks that extend to them large loans).

Singapore has extensive exposure to both these sectors, being a financial hub as well as a key provider of drill ships and off-shore rigs. As the two sectors contracted, we saw fewer expatriates from related industries coming to Singapore; and the few that did had employers with tight budgets in mind. Gone are the days when employers would fork out $8,000 or $10,000 a month in rental.

While there has since been some recovery, we’re still experiencing a few aftershocks of the fallout from the past two years. And as the property market tends to move in tandem with the overall economy, we may still be navigating choppy waters for some time.

  1. Limited influx of potential tenants

First, note that overall foreign employment contracted last year. A smaller influx of foreigners means fewer potential tenants to rent to. However, the issue is not so much with the overall number of foreign workers coming in.

The problem is that more of the foreign workers coming in are S or E pass holders, who either do not rent their own place to stay, or else have extremely tight budgets. The kind of expats who would rent, say, a private 1,500 square foot condo are not the bulk of the incoming foreign workers (see point 1).

There’s just a much smaller pie for local landlords to share; and some of the landlords are getting in a huff and refusing to take part at all (see point 3).

  1. The holding power and denial syndrome of landlords

Landlords in Singapore are themselves driving up vacancies, by combining two potent forces: holding power, and denial.

Most landlords are not overleveraged, and many have fully paid up properties. Without mortgages nagging them, they can be content to leave a unit empty for months at a time.

Combine this with the rental rates that they’re used to getting – few landlords are happy to accept, say, 20 per cent shaved off the monthly rental income; they’d rather wait for the prospect of higher paying tenants.

And wait. And wait. Because if there’s one thing more uncomfortable that getting less rent money, it’s having to face the fact that the good times are past.

Over the course of the year, we can expect to see a fair number of vacancies in the rental market that exist just because landlords are stubbornly refusing to drop their rates. This could mean an opportunity for the first landlords who are ready to compromise, and who decide that having some money beats having no money.

For tenants, of course, this is all good news. There’s an abundance of good properties at comparatively lower prices right now; if you need to live in Singapore, you’ve narrowly missed the period when you’d have to sell three vital organs to afford a month’s rent. Check out the best housing deals available with, and lock in those good prices while they last.

You Might Also Like

No Comments

Leave a Reply