Tenants in Singapore may have upper hand in 2025 as leasing market cools

By Andy Mukherjee

 

Singapore’s red-hot leasing market for private housing finally began to cool this year as supply of new apartments got the better of post-pandemic demand. Although the outlook for 2025 is still unclear, the dice seem to be loaded in favor of tenants. While landlords will fight tooth and nail to pass the burden of property taxes and interest rates when contracts come up for renewal, global banks, tech firms, and other multinationals may be cautious about how many more employees they bring into the city-state.

 

As a major Asian financial center, Singapore is highly exposed to the current uncertainty in the global economy. The post-election euphoria around President-elect Donald Trump’s economic agenda of deregulation and tax cuts is starting to wane. Higher-for-longer borrowing costs are emerging as a real risk.

 

After jumping nearly 60 per cent in three years, the island-wide rental index has softened by 4 per cent over the last four quarters. The decline would have been somewhat sharper had it not been for a small bounce in the three months to September.

 

High-end condominiums in the central region are leading the way to greater affordability. Which way the pendulum swings next year — and by how much — may be decided by the number of new units becoming available for lease. And the number of new expatriates coming to the city. 

 

So far this year, developers have been cautious with apartment supply, though that could change. According to data released Friday, 738 new private units were sold in October, an 84 per cent jump over the previous month, and the most since last November.

 

This is not enough to flood the rental market. There’s still plenty of demand, particularly from Singaporeans in public housing looking to upgrade to private condominiums. Still, vacancy rates have been rising, and landlords have to pay the government a tax on wealth tied up in property even if it isn’t earning any income. (Tax refunds on vacant homes went away a decade ago.)  

 

Owners may yet reject lowball lease offers if they expect to be compensated by an increase in the value of their homes. But prices are softening after having risen more than a third since the 2020 outbreak of Covid-19. Any gains may be limited by a 60 per cent tax on foreigners buying property, and a scaling back in expectations of how swiftly interest rates might fall. All that’s tilting the balance toward tenants, mostly new immigrants.

 

It was very different during the pandemic. Back then, local demand held sway as social-distancing restrictions and border controls caused a shortage of construction workers from Bangladesh, India and other countries, and a disruption in the supply chains for building materials. Unmet demand for public housing, which accommodates 80 per cent of the population, spilled over into condo rentals. As Singapore made an early switch to “living with Covid-19” in 2022, foreign-born professionals rushed back in, pushing rents through the roof.

 

Of late, though, the wave has turned into a trickle. Most of the non-resident employment increase in the second and third quarters came from work-permit holders in construction, manufacturing, security services, and landscaping. These workers tend to be accommodated in dormitories and public housing. As companies cut costs by pruning headcount, an expected decrease in better-paid employment-pass holders would likely result in lower demand from new foreign tenants, particularly for mid- and high-end properties, Savills Research noted recently.

 

There is little direct risk from Trump’s proposed tariffs. Unlike most other Asian nations that buy less from America than they sell to it, the financial center runs a trade deficit with the US. Still, as Prime Minister Lawrence Wong said recently, Singapore’s open economy, which trades goods worth three times its gross domestic product, “would be concerned in a world where there are more and more frictions to trade overall.” 

 

Then there are domestic political compulsions. The city-state’s next general election has to be held no later than November 2025. And that means further pressure to maintain a tight lid on the number of foreigners, a perennial hot-button issue with voters. This is another calculation that Singapore landlords will need to keep in mind as they enter into rent negotiations.

 

But while tenants will be in an advantageous position, they shouldn’t expect grand bargains, either. The city will bulk up on talent in areas like artificial intelligence and fintech, besides hosting more wealth managers to compensate for a drop in trade finance. Unless Singapore developers lose their nerve and release too many more units, rents won’t crash.   Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper