Property rental market
The soft property rental market has caused rents to weaken considerably compared to five years ago when rental demand was very strong. Besides market factors, how fast a property gets rented out also depends on the landlord’s mentality.
Recently, I witnessed two contrasting rental cases within a very short span of time. In both cases, the landlords have owned their respective properties in different parts of Singapore since day one. They have also enjoyed good rental returns over the years especially during the last couple of years when there was a shortage of housing supply and a great influx of foreigners coming to Singapore to work.
The calm and steady landlord
In the first case, the landlord secured a new lease that started almost immediately after the current one expired. The new rent was 20% lower (than the one inked 2 years ago) and the landlord was very decisive in his decision making. When I commented to the landlord’s agent about his decisiveness, the agent remarked that this is a seasoned landlord who has seen everything and knows what are the important factors to consider when it comes to rental pricing. The property was once rented out for half of what the new rent is and has also been rented out at rates higher than what the previous tenant paid. The landlord does not let the market situation affect him. The market is what it is.
The angry landlord
In the second case, the landlord could not come to terms with the fact that he was not earning as much because of falling rental rates. He was also unhappy about the need to spend money to touch up and refresh the property as recommended by his property agent. Sadly, this landlord was emotionally affected by the reduced rental income & the maintenance cost which impaired his decision making. This resulted in the property staying vacant for many months because it was not competitively priced (still trying to rent out at above market price) while the condition of the property was not attractive to prospective tenants. The longer the property stayed vacant, the greater the loss in rental income. The property was vacant for about six months before a tenant was finally secured at a much lower rental. This was achieved only after the landlord finally agreed to touch up the property when it had already been vacant for four months. The accumulated loss in rental income for six months could have paid for many rounds of touch up work with spare change.
Be in tune
In this soft rental market, it is very important for landlords to be in tune with what is happening in the property market. There is no point being upset with the market because it would only cloud their judgement and decision making. Always weigh carefully the cost of potentially long vacant periods. It is always better to rent out fast at reasonable rental rates versus dream high rates that may never happen. When in doubt, seek advice from competent property agents.
P.S. You would be mistaken if you think just because the rental market is soft, rental would naturally drop by 10% or even 20% across the board. There are a number of factors that go into determining the amount of rental a property can fetch at any time. Despite the soft rental market, there are still properties that are fetching very decent rentals that have hardly dropped because these properties have very good attributes.