ST : New condos to keep prime rents in check

Sep 26, 2010

property

New condos to keep prime rents in check

Rents at some prime projects already feeling the impact of the new supply of private homes

By Joyce Teo

Some recently-completed prime condominium developments are commanding above-market rents and thus helping to prop up the average rentals in existing prime projects, said a recent report from Jones Lang LaSalle.

But other properties in the central areas as well as those in alternative locations are already feeling the impact of the new supply, it said.

The consultancy's preliminary estimates showed that average prime non-landed residential rents rose 1.1 per cent quarter-on-quarter to $4.65 per sq ft (psf) a month in the third quarter.

Yet, average rentals in popular central areas such as the Central Business District remained unchanged in the third quarter while rentals in the popular East Coast districts slipped 4.3 per cent quarter-on-quarter to $3.30 psf per month.

Overall, the rental market is likely to remain largely flat in the coming months, experts said.

The new prime supply in the market includes projects such as Skypark at St Thomas Walk, Ardmore II in the posh Ardmore Park area and Belle Vue Residences in Oxley Walk.

Jones Lang LaSalle said that from the beginning of this year to last month, about 1,520 new units have been completed in prime districts 9, 10 and 11.

While it is unable to release the deals done due to confidentiality, average rentals around the Ardmore area remain stable at around $18,000 per month (or about $5.50 to $6.50 psf), with some units fetching less due to construction work in the vicinity, it said.

According to OrangeTee head of research and consultancy Tan Kok Keong, the recent completion of projects means that tenants now have more choices.

'As a result, rents at better located projects are holding firm while rents at those that are affected by temporary inconveniences are softening.'

For instance, the asking monthly rent for a unit at Ardmore II was reduced from $14,000 to $11,000 due to the construction noise in the vicinity, he said.

New completions will intensify competition in the leasing market, as better located or newer units will command a rental premium, said Cushman & Wakefield's senior manager of research, Asia Pacific, Mr Ong Kah Seng.

This is especially so as there are more new developments that come with more unusual designs and exclusive lifestyle concepts.

Still, tenants will choose newer premises only if the rental premium is minimal, he said.

'Some slowdown in leasing activity leading to a muted pace of rental recovery is in sync with the moderation in economic recovery,' he said.

While the recent round of cooling measures is targeted at speculators, the leasing market may also see some spillover effect.

'Given that the private residential market will undergo a temporal softening after the slew of government measures, tenants are unlikely to be willing to accept significantly higher asking rents,' said Mr Ong.

Looking further ahead, experts said a substantial upcoming supply of prime homes in the next few years is expected to keep prime rents in check.

As more of these new prime projects come onstream, rents of some older properties are likely to be hit, said Jones Lang LaSalle's head of South-east Asia research Chua Yang Liang.

'Over time, the rental premium in new projects may ease if tenant demand is unable to keep pace with the supply coming onstream,' added Dr Chua.

An estimated 14,000 more units are scheduled for completion from the third quarter to 2015, which translates to around 2,500 units per annum on average or 1.5 times the historical 10-year average of around 1,600 units per annum, he said.

joyceteo@sph.com.sg