PRIVATE residential rents are starting to soften, especially in the high-end market segment, amid economic uncertainties and a boost in home supply, a report by Savills Singapore indicated.

The rental index of non-landed private residential properties rose at a “much slower pace” of 0.2 per cent in the third quarter of this year, compared with a quarterly growth rate of 1.4 per cent to 8.3 per cent since Q1 2021, the consultancy said in its report on Tuesday (Nov 21). 

By region, rental growth of non-landed properties in the Rest of Central Region (RCR) slowed to 1.9 per cent in Q3 and 1.3 per cent for the suburban Outside Central Region (OCR). 

Meanwhile, rents of non-landed properties in the prime Core Central Region (CCR) – a proxy for high-end and luxury homes – fell 1.7 per cent quarter on quarter. This was the first decline since Q1 2021, Savills noted. 

The average monthly rent of high-end non-landed homes tracked by Savills dipped 0.6 per cent quarter on quarter to S$6.16 per square foot (psf) per month in Q3. This was the first rental drop for such properties, which have booked accumulated growth of 51.9 per cent for the last 2.5 years, said the consultancy.

Of the projects in the Savills basket, 20 showed a quarterly decline in Q3, up from 15 in the previous quarter. Private homes in the River Valley and Downtown areas experienced a higher quarter-on-quarter drop compared with those in other areas, Savills noted. 

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“It reconfirmed our view that rents have reached a plateau, particularly in the high-end market segment,” it said. “This is the result of the confluence of events ranging from the uncertain economic outlook, high inflation, weakening labour market as well as the increased number of completed homes.”

Overall, even though rents are still rising, Savills highlighted that it has been getting “increasing feedback” since July that rents are transacting below peak levels recorded in Q1. 

“This has been the frequent narration for the CCR and most parts of the RCR and OCR,” it said. “We believe that the inflexion point for rents came sometime in August and is presently permeating through the island.”

It added that of the 27 districts with rental transactions, rents of 15 districts rose quarter on quarter in Q3, while 11 registered a negative change. 

Districts that posted rental growth had an average increase of 1.3 per cent; for those that fell, this was minus 2.4 per cent. This proves that “not all rental districts are thriving”, said Savills. 

This comes as leasing volume for private residential units islandwide fell to 23,145 in Q3, down 9.8 per cent from 25,657 in the corresponding quarter a year earlier. This was also 12.8 per cent lower than the average leasing volume for Q3 between 2018 and 2022, Savills pointed out. 

Among the three regions, the CCR had the biggest decrease in leasing volume at 10.4 per cent. This was followed by the RCR with a 10.1 per cent fall and the OCR with a 9 per cent dip. 

The overall vacancy rate for private homes rose by a notch to 8.4 per cent in Q3, since new supply still “significantly” outpaced net demand in Q3, said Savills. This was seen across the board, with the OCR experiencing the largest increase of 2.7 per cent, followed by the CCR at 2.1 per cent and RCR at 1.4 per cent. 

For the whole of 2023, Savills expects non-landed rents to rise 10 per cent from 2022, given the strong showing in the first half of the year. 

But in the following year, the consultancy predicts a general decline in rents of around 5 per cent. This is mainly due to economic headwinds in Europe and Asia, which may affect the number of foreign workers multinational companies wish to station in Singapore, it said. 

There is also a surge in private home supply, with 17,000 new completions in 2023 and another 9,900 units in the following year, said Savills.

“If landlords of the 2023 vintage of completed stock bend towards tenants’ asking rents, rents will likely decline,” said George Tan, Savills Singapore managing director of Livethere Residential, the digital residential marketing arm of the consultancy. 

“However, the vacant stock of this year’s new completions should be soaked up within a quarter or so. When that happens, vacancies are expected to then fall back to (around 7 per cent).”