Condos' dark tale of rising vacancies
AS DUSK descends upon the Singapore skyline, the excess capacity building up in the private housing market is evident. Dark patches in some condominium developments completed six to 12 months ago, or even longer, point to a significant number of vacancies.
Analysts cite a host of factors, including strong investment demand for real estate after the global crisis, escalation in private home completions of late, and slower expatriate inflow. Vacancies are set to climb while rents will fall, in general. Suburban locations, where most of the supply is, will be the worst hit.
"If, increasingly, there are a lot of empty units, it could indicate that we're not making the best use of our limited land resources," said Lee Lay Keng, DTZ's regional head (SEA) of research.
After the global crisis, investors sought refuge in trusty assets such as real estate. Taking advantage of the low interest-rate environment, some took to hoarding property at new launches and are, hence, not bothered whether they can find tenants after taking possession of their units, observers said.
Some high-net-worth foreign buyers treat their property here as a holiday home and leave it unoccupied most of the time.
But there are others who leave units vacant because they are unable to find tenants. Ms Lee noted: "Competition for tenants is increasingly intense, with both demand and supply factors at work.
"On the demand side, changes in labour policies have slowed down the flow of foreign professionals into Singapore, while on the supply side, there is a higher-than-average number of private home completions."
JLL national director Ong Teck Hui highlighted that "those who bought for rental returns would find themselves in a more competitive leasing market today, where units in mediocre locations would be more difficult to lease (out) and, therefore, remain vacant for a longer duration, especially during this period of strong supply".
Ku Swee Yong, chief executive of Century 21, explained that those who acquired private homes in, say 2010, would already be sitting on profits. "If they bought for capital gains, they may prefer to keep their unit empty rather than rent it out, because it is quite (normal) for a fresh tenant to have a clause in the lease agreement protecting him from viewings by the landlord in the first six or even 12 months."
R'ST Research director Ong Kah Seng said that, due to low rents, some owners have left their units empty, especially the cash-rich set who did not take any housing loan for their purchase. "A vacant unit may deteriorate faster, but leasing it out at a low rent may not be feasible since it will incur high maintenance costs. High-end properties have the finest finishes, so maintenance and repair costs may be hefty. Selected fit-outs and finishings such as tiles may be of limited collection and difficult to replace if...damaged by the tenant."
Developers left with unsold units, especially in the slow high-end segment, also contribute to vacancies as these projects are completed. Other factors may also be at play for specific projects. But the overall trend of rising vacancies and softening rents is clear amid climbing private home completions since last year.
The 13,150 private homes which received TOP last year were a 27.3 per cent increase over 2012's 10,329, and 40 per cent above the past 10-year average of 9,395.
The figure for Q1 this year was 4,114 and the full-year tally is expected to hit 17,138, based on estimates submitted by developers to the Urban Redevelopment Authority. After that, completions are slated to climb further to 21,738 next year and 26,252 in 2016, before easing the following year.
URA figures show that the pool of vacant private homes rose to 19,284 at end-Q1, from 18,003 at end-Q4 last year and 14,532 at end-Q1 last year. The islandwide vacancy rate rose to 6.6 per cent at end-Q1 this year, from 6.2 per cent a quarter earlier and 5.2 per cent at end-Q1 last year.
CBRE executive director (residential) Joseph Tan said that the latest quarter's increase could be due partly to families who had yet to move to the new homes completed in Q1.