Ailing property market starting to find its feet?

Signs of recovery in luxe sector but analysts highlight record high vacancy rate

Amid a slew of property market data released by the Urban Redevelopment Authority (URA) yesterday, one number stood out: the vacancy rate, which hit a 16-year peak of 8.9 per cent in the second quarter. This represents a formidable 30,310 vacant private residential units across the island.

But while high vacancy rates do not bode well for the rental market, this seems to be the one rare area of negativity in a market that is gaining some healthy colour.

"The store of wealth in households is still strong. The conventional argument that when vacancies go up, people unable to find tenants default on their housing loans and are forced to sell may not apply for now, especially as interest rates are still low," said Mr Alan Cheong, Savills Singapore research head. "People are able to hold on to their empty unit for far longer than in the past, or deal with lower rents," he added.

So, it wouldn't be unusual to expect vacancy rates to continue hitting record highs, fuelled by rising home completions at the same time that housing prices and volumes continue to stabilise.

By most accounts, the sales market today is stirring as home hunters tire of waiting for further falls and start trickling back in.

... while high vacancy rates do not bode well for the rental market, this seems to be the one rare area of negativity in a market that is gaining some healthy colour.

It is a recovery that seems to be led by the luxury segment, especially Districts 9 and 10. This is different from the last market upturn, starting in 2009, when the recovery was led by Districts 1 and 2 - where prices are now still sliding, noted Mr Kelvin Fong, PropNex Realty executive director. (Sales by his team of about 2,600 agents are up by 30 per cent year on year.)

One reason to believe the market is approaching a trough is in resale volumes, which have picked up across all segments. They shot up 34 per cent year on year in the second quarter to 599 in the core central region, rose 14 per cent to 620 in the rest of central region, and grew 10 per cent to 921 in the outside central region or suburbs.

At the same time, the number of uncompleted and unsold private homes has been coming off. These amounted to 21,489 units in the second quarter, the lowest level since the URA started collecting data on them in 2001.

Unsold stock should continue to be soaked up, given underlying demand. New sales have held steady at about 7,000 annually both last year and in 2014.

"The sales market has stabilised, with no pressure from a massive wave of stock coming in," said Mr Desmond Sim, CBRE research head for Singapore and South-east Asia.

Would-be investors should take note though that rentals are likely to continue falling. And apart from rising supply, leasing demand - typically foreign-led - does not seem to be improving, Mr Sim said.Vacancy rates could even go into the double digits.

As for cooling measures, the improved market sentiment probably means the Government is unlikely to tweak them. But there is also "no hurry for it to introduce more measures, as this upturn could just be a short-term blip", said Ms Christine Li, Cushman & Wakefield research director.

A version of this article appeared in the print edition of The Straits Times on July 23, 2016, with the headline 'Ailing property market starting to find its feet?'. Subscribe