SINGAPORE: The number of completed but empty private homes in Singapore is rising but property watchers have said the vacancy rate is still "healthy". They expect the number to go up in the next few years, with the increase in the suburbs being the most significant.
According to the Urban Redevelopment Authority (URA), the vacancy rate of completed private homes hit 7.1 per cent in the second quarter of this year - the highest since the first quarter of 2006. Vacant units in the private residential market refer to completed homes which have not been sold by developers, or units which have been purchased but are unoccupied.
Property observers said the current vacancy rate is still healthy for the market today.
"Looking at the way prices have been behaving and of course you have the impact of the TDSR (Total Debt Servicing Ratio) and the cooling measures, it appears that around 6 to 7 per cent is the normal or healthy vacancy level in Singapore,” said Mr Alan Cheong, senior director of research and consultancy at Savills Singapore.
“But unfortunately, vacancies will increase as more projects get completed in the course of the next couple of years. We may even head towards double-digit levels like 10, 11 per cent."
Including executive condominiums, URA estimates that 24,893 homes will be completed next year and another 29,582 homes will come on stream in 2016. This compares to only 20,023 completed homes expected this year, and fewer than the 14,400 last year.
"As more and more developments get completed, some of the units in there could have been bought by investors who a couple years ago bought it during a buoyant market with a very optimistic outlook that they can either get capital gains from their investments or rent out their units,” said Mr Nicholas Mak, executive director of research and consultancy at SLP International Property Consultants.
“But I think in the next few years, the market could be challenging, especially in some locations where it is not proven as an established leasing market."
SLP International Property Consultants said these locations are likely to be in the suburbs and are not situated near amenities or MRT stations. "Because when there is more supply of available units for lease, and slowing demand in the leasing market, some of the tenants will have a flight to quality - better located ones or those located nearer to their offices," explained Mr Mak.
Already, the vacancy rate for the suburbs is rising. Numbers compiled by SLP showed that the vacancy rate in the Outside Central Region is at 5.6 per cent in the second quarter of this year - the highest in two years.
Observers said developers may be under pressure to sell these units, especially when the projects have a Qualifying Certificate attached. The certificate mandates that developers have to sell all units within two years of obtaining the Temporary Occupation Permit. If developers are unable to do so, they can apply for an extension for a fee. The Singapore Land Authority said 11 developers paid for an extension of time to sell their units, in the first five months of this year.
The heat is also on private homeowners who hope to rent out their properties. Property watchers said the pool of tenants is expected to shrink against tougher hiring rules for foreigners.
Rental prices have been on a downward trend since the third quarter of 2013, shortly after the TDSR was introduced at the end of June 2013.