Divergence in price and rental trends according to SRX

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According to SRX’s price index, there appears to be a divergence between the price and rental charts in Singapore.

Prices are climbing strongly while rentals seem to be wallowing in mediocrity.

A quick look at the price chart for non-landed sales transactions show a very sharp uptick as of Mar 2018.

The last time such a strong uptick was seen in the 1998 and 2008 recovery from the respective financial crises.

SRX price index Apr 2018On the other hand, rentals of non-landed private properties have been terrible.

It has been on a downtrend since Jan 2013, only plateauing over the last year or so.

SRX rental index Apr 2018Why is there such a divergence?

One reason could be increased liquidity in the market from en-bloc sales, loose monetary policy by central banks, and foreign money flowing into Singapore, leading cash rich buyers to push up property prices.

On the other hand, the poor rental performance could be due to the tight immigration policy by the government.

With fewer expatriates and workers to rent properties, rental demand naturally drops.

Diverging trends possibly leading to unaffordability

As a result of this divergence, the price to rent (price divided by rent) ratio will start to increase, indicating some form of price unaffordability.

Landlords who bought their properties in the 2012-2014 period and hoping to rent it out for a tidy sum would have to moderate their expectations a little.

The government tightened the immigration tap shortly after, leading to a decline in rental demand.

HDB trends

While there are no diverging trends between the sale and rental of HDB flats, the performance has been very poor since 2013.

A quick glance at the HDB sale index for all property sub types show that HDB prices are languishing.

This has been the case since 2013 and the index is now at the level it was around 2011.

SRX price index HDB sale apr 2018The story is similar in the HDB rental sector where the decline has not been abating.

The index is now at the level it was in 2010, just after the global financial crisis.

SRX price index hdb rental apr 2018What do we make of the very poor performance in the HDB sector?

One reason for the poor HDB price movement could be due to the ageing stock of properties.

With more properties becoming older than 40 years, the price is taking a beating, leading to the overall index declining.

In the rental sector, the story is similar to that for private condos. With reduced demand by tenants, expatriates and foreign workers, rental rates naturally drop.

Given the good quality of buildings in Singapore, renters do not usually differentiate very much between a private condo vs a HDB, unless the features of the private condo are very compelling, or the HDB is in a very run down state.

Generally, if the interior of both properties are fairly comparable, tenants are relatively indifferent to choosing either.

The other factor is of course location, but that is irrelevant when comparing the islandwide indexes.

So where does that leave the property market?

Looking at the sharp increase in property prices and the poor state of the rental market, policymakers would likely be keeping a close eye on this divergence.

In the HDB market, the continued slide in prices and rents will be something to watch out for.

Not least because 80% of Singaporeans living in HDB flats are seeing the value of their asset slowly get eroded.

Furthermore, the poor rental market is not helping those who need to have a steady stream of cash flow.

Property is something that is close to the heart of Singaporeans.

A few big themes that I think warrant further study include

  1. Ageing HDB flats
  2. Diverging trends in the private sector rental and price indexes
  3. Diverging price trends between HDB and private properties
  4. En blocs causing dislocations and divergences in the market


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