If we are not experiencing runaway inflation, then we are certainly experiencing runaway Singapore rental rates.
The Urban Redevelopment Authority (URA) Rental Index of Private Residential Properties jumped by 9.9 per cent in 2021 and six months into 2022, the rental index had spiked by another 11.2 per cent to reach an all-time high of 127.
The last time Singapore experience double-digit increases in the rental index were last seen in 2010.
Increase in rental rates
The increase in rental rates is not just seen in private housing but also in the public housing.
What’s alarming is there is a surge in rental rates between the period of Quarter 2 2022 and Quarter 3 2022. Which means private rental is at all time high now.
Let’s look at some the possible factors that may influence the rental rates in the near future. The recent cooling measure on the 15-month wait-out period for private down graders may further cause a massive surge of renters.
Increase in interest rates
Next interest rates will continue to head north and it is likely to end with 4.5% on the FED rates in 2022 and likely to further increase in 2023 hopefully at a slower pace.
This may affect landlords bottom line and cause further increase in rental rates by the landlords.
Uncompleted private residential
As at the end of 2nd Quarter 2022, there was a total supply of 48,836 uncompleted private residential units (excluding ECs) in the pipeline with planning approvals3, compared with the 47,415 units in the previous quarter.
19,958 units (including ECs) are expected to be completed in 2023. In total, round 30,700 units (including ECs) are expected to be completed in 2022 and 2023, which is almost three times the 10,400 units completed in 2020 and 2021.
This will help to cater to housing needs in the immediate term. More supply with planning approval, totalling 27,000 units as of the 2nd Quarter of 2022, will be completed beyond 2023.
Vacancy rates of completed private residential properties as at the end of 2nd Quarter 2022 in CCR, RCR and OCR were 7.4%, 6.6%, and 3.8% respectively, compared with the 8.1%, 6.1% and 3.6% in the previous quarter.
With more supply in the pipeline, likely it will help to cool the rental rates in future.
Red hot inflation
In order to cool the red hot inflation, interest rates may have to keep increasing in the coming months. Increase of interest rates does not only affect property it will also affect corporates earnings bottom-line and in-directly affect employment.
Amazon had freeze hiring in profitable advertising business and is to freeze hiring across the board.
Apple pause hiring for roles outside R&D in cost-cutting move. Ford plans to lay off 3,000 salaried and contract workers as part of restructuring.
Vimeo cut 6% of workforce in July. Shopify laid off 10% workforce worldwide. Snap is planning to lay off 20% of its workforce, twitter also just announce 50% layoff and the list goes on. This will certainly affect the local open economy.
Financial Crisis
The reality is that rental rates are surging however it will not keep on increasing forever, there will come a cooling period.
Between 2007 – 2008 during the property heydays of 2008, near the time of the Global Financial Crisis, where every items of property seems to reach all time high and next the property prices started to cool.
If you are not in the hurry to look for place to rent, perhaps you can consider a few options to avoid the current high rental rates. For example like staying with your parents, choosing to rent a public housing HDB instead of private housing.
If still insist of a private housing due to the preference of facilities then may opt for older projects and a little further away from MRT and central Singapore.