Rental Income Sucks? Tech@SG Might Fix that in Q4 2019

Before the comments section gets shut down by anti-foreigner xenophobes, quickly read this – Singapore’s efforts to raise the number of foreign tech talents is promising to give rental income a sharp bump:

What is Tech@SG?

Tech@SG is part of an initiative to bring more tech talent into Singapore. This is needed because haha, you don’t we’re stupid enough to get into THAT debate do you?

All we’re going to say is, the programme will “facilitate” the process of getting employment passes approved, for the “core team members” of select tech companies. The qualifying firms must have secured more than US$10 million in Venture Capital (VC), cumulatively, and the funding must have come from a recognised VC in the past three years.

In short, Tech@SG is primed to bring in more expatriate workers, who make up most of the tenant demographic in Singapore. This is likely to start in Q4 2019, when the pilot programme begins. But while this is an overall positive for landlords, some details remain unclear or speculative.

So for sure rental incomes will go up?

Uh…well, probably. If you ask the analysts right now, you’ll see a lot of nodding heads and people saying “good market, good market”. But there are two key things we don’t know:

First, we don’t know what sort of numbers we’ll see. It may open the floodgates, and see landlords eating three meals a day at MBS and showering in champagne. Or it may turn out to be just enough to fill currently vacant rental units; in which case, we may not see any sharp spikes in rental income.

Vacancy rates at the end of Q2 stood at 7.8 per cent in the CCR, 6.4 per cent in the RCR, and 5.7 per cent in the RCR. While that’s not high, it does mean there’s still a lot of room to absorb a fair number of new tenants.

Second, we know most of the tenants will be E-Pass holders; but an income of $3,600 and up covers a pretty wide range. They may be too cash strapped to rent outside the fringe regions, or they may be highly paid  experts who rent Orchard Road properties.

This also depends on the generosity of their employer; contrary to popular belief, not all tech companies blow half their budget on penthouse accommodations and free cocktail bars. Although if 99.co did that, we’d have way more manpower to churn out cheeky videos and content, and upgrade Singapore’s best map-based system to help you find a good home.

(Let our management know)

Which regions will benefit the most?

The most immediate benefits are likely to be found in Jurong, Changi, and Paya Lebar.

This is because Jurong and Changi have large tech / business parks nearby, and most tenants will want to be close to their place of work. Paya Lebar, while not a tech-hub, is one of the main new business hubs in Singapore; and it’s also closer to the CBD, compared to Jurong and Changi.

We’d call Park Place Residences as a likely winner for Paya Lebar (Paya Lebar Quarter is the heart of the district). For Jurong, we think any new tenants will eye Westwood Residences, due to proximity to the Jurong Innovation District (JID). For Changi, prospective tenants are spoiled for choice. Just on competitive pricing and distance to Changi Business Park, we’d look at the older condos Changi Rise, or Changi Court (which is near Upper Changi MRT station).

And with any situation like this, there’s the inevitable prediction that luxury units in Districts 9, 10, and 11 will see a boost – ostensibly, because there will be some people rich enough to stay there; C-suite types and so forth. That may be true, but we’re a little less certain these days.

Singapore is much more decentralised, and there’s every possibility that even senior management will want to be near the tech districts rather the CBD (barring perhaps banking executives, or some FinTech types).

While a lot of you are probably thinking of the Punngol Digital District, development of the area is still underway; it’s not likely to be an immediate draw by Q4 this year.

Overall, it’s good news for a rather muted rental market

Singapore’s residential properties see residential yields of between two to three per cent, with the average (according to 99.co data) being somewhere in the region of 2.3 per cent. That makes residential a little lackluster compared to commercial counterparts, which often reach yields of between four to five per cent at present (plus, there’s no ABSD on commercial properties).

Tech@SG may be the big break residential landlords are looking for – so think carefully before signing any long leases, just before Q4 this year.

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