Home Leases Stagnant For 2 Years, Still Looking Soft

Source : Tne Business Times, April 8, 2008

Foreigners could be switching from leasing to buying property, says Savills Singapore

Residential leasing transactions have stagnated in the past two years after falling from a recent high of 33,874 in 2005.

According to an analysis of Urban Redevelopment Authority data by Savills Singapore, transactions were about 15 per cent lower at 28,928 in 2006 and 28,893 in 2007, versus 2005.
















Savills Singapore director of marketing and business development Ku Swee Yong said that as leases are generally renewed on a two-year basis, the drop between 2005 and 2006 should imply a rise in 2008.

But figures for the first two months of this year indicate that residential leasing is not likely to pick up. Indeed, Savills’ analysis reveals only 3,495 transactions.

The lowest number of quarterly transactions since the start of 2000 was 4,024 in Q1 2003, while the high of 9,917 was recorded in Q3 2005.

Mr Ku, who reckons foreigners make up about 90 per cent of the leasing market here, said it will be important to watch the figures over the next few quarters.

He thinks fewer financial-sector expatriates may relocate here due to the global credit crunch.

But according to some foreign business associations, there has been no let-up in the influx of expatriates so far.

American Chamber of Commerce executive director Dom LaVigne said: ‘Due to the strong business conditions in Singapore and based on what we’ve heard from our members hiring more employees, we think that the number of American expats living here will continue to rise in the coming years. Two years ago, there were 14,000 Americans in Singapore. Today there are 15,000 Americans and more than 3,000 US businesses here.’

The number of British expatriates here has also increased over the past two years, with the British Chamber of Commerce (BCC) saying about 20,000 British nationals now live in Singapore.

BCC spokesman Roman Scott, who is also managing director of the Calamander Group, said: ‘Although everyone is moaning (about rents), it’s mourning the end of a particularly good deal, not complaining that the recent sharp rises are unfair.’

BCC, which tracks the cost of housing and offices, believes the rise in rents is a function of market forces and a ‘long-overdue cyclical correction from artificial lows’.

Pointing out that rents fell sharply 10 years ago, Mr Scott said: ‘Given that real wages and wealth have actually risen in those 10 years in Singapore, this means rents are still cheaper in real terms than the previous high 10 years back, and affordable compared with other global cities, particularly Hong Kong and Tokyo.’

Rents, however, have been increasing rapidly. Based on Savills’ basket of properties, rents for high-end homes increased about 30 per cent year on year in Q4 2007. Savills noted that a 2,885-sq-ft unit at Ardmore Park was recently leased for $20,000 a month or about $7 per square foot (psf) a month.

For high-end properties, Savills says the quarterly average rent is now $6.68 psf a month.

January saw a particularly low number of new leases, with just 1,474 transactions. District 10, the most popular district, suffered a 42.2 per cent drop to 203 transactions, compared with 351 a year earlier.

Other districts in the top five, including districts 15, 9, 14 and 16, saw transactions fall 39.2, 50, 19.8 and 43.2 per cent respectively.

A shrinking pool of leasing properties due to collective sales could have exacerbated the drop in numbers, especially in the prime districts. But as Savills’ Mr Ku points out, demand should have spilled over into other districts, keeping the overall number of transactions up.

He believes foreigners could be simply switching from leasing to buying property.

‘This was helped by the attractive low cost of mortgages in Singapore and also the favourable tax advantages foreigners from certain countries enjoy from owning properties in Singapore,’ he said. ‘We certainly saw many tenants convert from leasing to owning in 2006-2007, starting with a change in US Federal Tax on US nationals’ housing benefits overseas.’

A separate analysis of property data by Chesterton International seems to support this assertion.

Comparing data from 1995 - during the run-up to previous property market peak - and 2007, Chesterton’s head of research and consultancy Colin Tan notes that while the percentage of foreigners, including permanent residents (PRs), buying non-landed private property increased from 17.9 per cent in 1995 to 29 per cent in 2007, the percentage of acquisitions by PRs alone doubled from 6.7 per cent to 14.4 per cent.

The relevance of this, according to Mr Tan, is that PRs tend to buy for owner-occupation while foreigners are more likely to buy for investment.

He said: ‘In recent years we have seen many purchases by Indian and Chinese nationals who are buying for owner-occupation, not investment. These people eventually become citizens. I personally know a number of them.’