Business Times - 26 Mar 2009
Tenants get to call the shots
With rents island-wide falling, tenants of residential properties now have more bargaining power. PATRICK LAI and AVIN SEOW offer advice to bargain-hunters.
RENTS in the private residential market began to fall from their peaks in 2008 even as the year saw strong leasing activity, with the highest leasing volume on record of 35,125.
The strong momentum in leasing in the third quarter continued into the final quarter of 2008, with more than 8,890 leasing transactions recorded, surpassing the seven-year average of 6,695. The buoyant activity, however, failed to ease downward pressure on rents as market conditions deteriorated at an unexpected pace, especially in the last quarter of 2008.
As such, the fourth quarter saw a 5.3 per cent slide in the overall rental index for private residential properties quarter-on-quarter, representing the steepest quarterly drop since Q1 1999. Still, compared with a year ago, rents island-wide were 2 per cent higher at end-2008.
According to the Urban Redevelopment Authority (URA), average rent for the Rest of Central Region (RCR) in Q4 fell by 5.9 per cent quarter on-quarter to $2.80 per square foot a month, while those in Outside Central Region (OCR) declined 4.3 per cent to $2.10 psf a month.
On a year-on-year comparison, however, both regions managed to post positive growth, with OCR registering a rise of 2.1 per cent and RCR of 0.8 per cent.
Meanwhile, rents for high-end, non-landed private residential properties tracked by Savills continued to trend lower in Q4, with a quarter-on-quarter drop of 4.9 per cent to $5.34 psf a month. This was the third successive quarter of decline, and the biggest quarterly drop since Q1 2003.
What then does 2009 hold for tenants and landlords?
Rents island-wide are likely to moderate further with prime rents easing by 15 to 20 per cent over the year in view of the strong housing supply (about 10,400 units) coming on-stream this year and the potential return to the market of rental units from en-bloc developments, on the back of anticipated weakening in leasing demand.
About 30 per cent of the new homes entering the market this year will be in the prime districts. It is anticipated that a flight to quality will ensue. Tenants who were previously priced out of the prime districts may return as rents fall to more affordable levels. Savills expects more local movement this year which could be as high as 50 per cent. Prominent prime projects due for completion this year include the 545-unit Rivergate, the 275-unit One Jervois, the 264-unit The Oceanfront @ Sentosa Cove and the 249-unit The Coast @ Sentosa Cove.
The year ahead bodes well for tenants who now have more bargaining power. A wider selection of rental homes means tenants can now negotiate for better terms such as flexible lease periods and more competitive rents. Tenants could therefore enjoy relatively lower rents at sought-after luxurious developments which were previously beyond their budget. For example, a unit at Ardmore Park which used to fetch about $20,000 a month more than a year ago is now asking for between $15,000 and $18,000 a month. Similarly, asking rents for 2,100 sq ft units at St Regis Residences have slid from between $16,000 and $17,000 a month to between $10,000 and $12,000 a month.
At the same time, tenants with smaller budgets will continue to find condominiums located at the city fringe more affordable. For instance, average rents in District 15 (Katong, Marine Parade and Siglap) stood at $2.65 psf a month in Q4 last year, down by 9.2 per cent from the previous quarter and 6 per cent year-on-year. Other city fringe areas like Districts 5 (Buona Vista, Dover, Pasir Panjang and West Coast), 7 (Beach Road) and 8 (Little India and Farrer Park) also saw similar declines of at least 5 per cent.
While it appears to be turning into a tenants' market, here's a gentle word of caution to those who might be carried away by the euphoria of striking a 'good' deal. Tenants would be well advised not to be too hasty in committing to a lease. We have some pointers below to safeguard their interests:
· Conduct an ownership search to verify that the rental property belongs to the landlord;
· If possible, meet the landlord in person before signing the tenancy agreement;
· Check for mortgagee's consent to ensure that consent is given to allow tenant's occupancy of the premises;
· Obtain a 30-day defect liability period from the lease commencement date.
As for landlords, the competition for tenants will heat up this year. Here are a few tips to increase the possibility of leasing out their units and securing a good rent:
· Engage professional and experienced real estate agents to market the property. This is to tap the agent's experience and clientele;
· Be open to one-year leases as this is a growing trend due to rising concerns about job security and potential home-buying opportunities during the downturn;
· Include 'extras' such as quality curtains and blinds, kitchen appliances, etc;
· Provide a copy of the floor plan where available, for reference.
Landlords of studio and one-bedroom apartments may find them easier to let out since the rent quantum is affordable due to their smaller size. Such tenants would tend to be young expatriates, singles or newly-weds who may have smaller budgets or are unwilling to commit to a home purchase due to the expectation of further price weakening.
Ultimately, exclusivity and location are still key factors in commanding premium rentals. Well-located and niche projects that boast lower density living and high-quality fittings should still attract a premium. For instance, the 73-unit Scotts Highpark located on Scotts Road offers large interior living spaces with private lifts and lush sky gardens on every fourth floor. Conversely, projects with a large number of units may face stiff leasing competition which may then lead to a price war, thereby exerting downward pressure on rents in the development and ultimately the neighbourhood.
Patrick Lai is associate director, corporate residential leasing, and Avin Seow is analyst, research & consultancy, Savills Singapore