Singapore’s luxury housing market continued to record some of the world’s steepest increases in rental rates during the first half of this year, as wealthy foreigners flow into the Southeast Asia financial haven, according to a recent report by Savills.
Rents for prime residences in the Lion City jumped by 13.6 percent in the first half of 2023, the second steepest increase among 30 cities included in the latest Savills Prime Residential World Cities Index, with the city-state trailing only the 13.9 percent increase in Lisbon, Portugal during the period.
Despite Singapore’s rent increases in recent months, Savills analysts pointed to a tapering of leasing rate growth in the luxury market after tariffs had increased by an average of over 50 percent in the past two years, with deceleration expected as more homes enter the market.
“The rapid climb up in rents was something unsustainable and was attributable to the delays in completion of units due to the pandemic measures,” said Alan Cheong, executive director at Savills Research & Consultancy. “However, with close to 18,000 private residential units coming online this full year, and the weight of a slowing economy, we believe that some form of mild correction is expected in H2/2023.”
Over the past 12 months, prime rents in Singapore have now climbed by an average of 32.3 percent, with Lisbon standing out as the only location to record faster growth since mid-2022 at 32.7 percent. as an influx of foreign tenants has spurred demand for high-end apartments, according to the property agency.
“This was particularly felt from (the second half of last year) onwards as agents felt the flood of foreigners arriving and seeking accommodation,” Cheong said.
The ongoing increases in the Little Red Dot stand in contrast to major markets like New York City, which had tied with Singapore for the fastest rate of rental growth in the first half of 2022, with an average 8.5 percent increase, only to downshift to a 1.6 percent rate of increase in the January through June period.
Despite the looming influx of new supply, Cheong projects luxury home rents in Singapore will rise by an average of 15 percent for the full-year 2023, moderating from the 26 percent spike in 2022.
Capital Values Lag
With economic headwinds growing and more supply on the way, rents in the city-state’s ultra luxury housing segment have already begun tapering off, according to a separate report by Knight Frank, which indicated a 4 percent quarterly increase in the second quarter. That rate was down from the 9 percent jump the property consultancy reported in the first three months of the year.
“Even expatriates with accommodation allowances were reconsidering their leasing options as the cost of living in Singapore had grown exceptionally due to the modern city-state’s safe haven reputation in a time of uncertainty,” said Nicholas Keong, senior director and head of residential and private office at the property agency.
While rent increases have continued to rise, higher borrowing costs have slowed growth in capital values.
Savills said capital values of high-end homes in the city-state inched up by a mere 0.1 percent from January through June, ranking Singapore in the bottom half of its global charts for that metric.
Luxury residential values averaged $1,780 per square foot of accommodation in Singapore for the first half, or less than half the $4,110 per square foot average valuation of premium homes in its regional rival, Hong Kong.
Weighted prime yields in Singapore’s luxury housing market, a proxy for profitability, settled at 3.3 percent at the end of June, higher than the 2.1 percent yield in Lisbon and slightly above the 3 percent average gross prime yield across the 30 cities in the index. Yields in Hong Kong averaged between 2 and 3 percent.
For the second half of 2023, Savills forecasts Singapore, along with Bangkok – which suffered a market slide during the pandemic – to post the highest capital value growth among the 30 cities tracked in the report. Capital values of prime residences in the two cities are predicted to increase from 4 to 5.9 percent in the next six months.
Foreign nationals have been actively snapping up premium apartments and mansions in the city-state, with an unnamed Indonesian family having purchased three two-storey good class bungalows on Nassim Road in District 10 in April for a total of S$206.7 million (then $155 million).