Sky-high HDB rents over?

THEY are the next segment of the local property market to be hit by the global financial crisis.
Rents of Housing Board flats, which have been climbing steadily, largely on demand from foreigners squeezed out of the private homes market, are up only slightly in the third quarter even as rents of private homes fell.

But property experts say HDB rents have likely peaked. They will hold steady for the next several months before they begin to crack from the pressure of falling rents in the private homes market.

'Any decline in private rents is going to contribute to the downward slide in HDB rents, but it may take a few months for the impact to filter down,' said Knight Frank's director of research and consultancy Nicholas Mak.

The pressure is already starting to show: Rents for HDB flats have shown smaller increases in the third quarter.

Median rents for five-room flats have risen by $100 every quarter this year to $2,000 in the third. But median rents for three-room flats remained unchanged at $1,500 in the three-month period to Sept 30 while median rents for four-room flats showed a smaller $50 rise to $1,800, from $1,750 in the second quarter and $1,600 in the first.

Private home rents are expected to continue dropping given the weaker economic outlook, particularly as supply is expected to rise next year when more developments are completed, experts say.

HSR Property Group executive director Eric Cheng says HDB rents are likely to stay stable for the next few months until the gap between private home rents and HDB rents starts to narrow.

There are now 21,400 HDB flats approved for subletting, up from 20,200 in the second quarter. But HDB subletting deals fell 4 per cent to 3,960 cases in the third quarter.

ERA Asia-Pacific's assistant vice-president Eugene Lim said: 'Next year, when tenancies are up for renewal, you will see rentals coming down.'

If landlords do not lower rents, their tenants may switch over to private apartments as the price differential between the two types of property narrows.

'It's the push-down effect as those pushed out of the private market go to the HDB market,' said ERA's Mr Lim.

Government data shows private home rents surged dramatically by 41.2 per cent last year, with rents for non-landed homes in suburban areas up 41.9 per cent.

An HDB property agent, who wanted to be known only as Chui, said sentiment in the HDB market has been slightly hit by the gloomy economic outlook and there is more 'tenant resistance'.

'HDB rents have come down a bit. For three-room flats, it is still not a problem getting tenants to pay $1,400 to $1,600 a month, but maybe not above that.'

Unit size and location play a big part in determining HDB rents, given that there is a renters' threshold, said PropNex chief executive Mohamed Ismail.

'A small three-room flat in a good location can get more than $2,000 but an executive flat in the same location may not command even $3,000,' he said.

'The threshold for HDB flats is around $2,500. Beyond that, people will go for condos with facilities.'

HDB flat owners can rent out their entire unit after occupying it for three years. This minimum occupation period rises to five years if they have a subsidy or housing grant.

Mr Alan Wong rented out his 67 sq-m three-room HDB flat in Kallang last month for a whopping $2,100 a month.

'It's a family from China. They are permanent residents, professionals, and have a daughter studying in a school nearby,' he said.

But he is one of the lucky few. HDB data shows median rents for three-room flats in the Kallang/Whampoa area at $1,500.

Currently, three-room flats in the central area, Bukit Merah and Marine Parade command the highest rents among HDB towns.

Still, rents of Marine Parade three-roomers have fallen from $1,750 in the second quarter to $1,700 in the third.