Nicholas Spiro

Macroscope | Why Asian property’s strong rental growth is a double-edged sword

Rental growth is a cause for concern in Asia’s residential property market, but it is also a key driver of returns in the commercial sector

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People look at buildings under construction in Singapore on February 17. Rental growth has surged in the city state in recent years, driving residents’ concerns about the cost of living and housing affordability. Photo: Bloomberg

Nicholas Spiro

Published: 4:30pm, 1 Jul 2024

Not that long ago, rents in Singapore’s private residential property market were going through the roof. In 2022, average rents for all private properties increased a staggering 29.7 per cent, the fastest rate since 2007. In the luxury market, Singapore supplanted New York as the city with the strongest rental growth, according to Knight Frank’s prime global rental index, which tracks prime rents across leading global housing markets.

While the breakneck growth in rents hit expatriates – who account for about two-thirds of all rented properties – the hardest, it became a hot-button issue. It raised questions about access to affordable housing for Singaporeans ineligible for government-subsidised flats and adding to cost-of-living pressures that cast doubt over the city state’s appeal as a financial hub.

Although rents began to fall in the final quarter of last year, they are still up 52 per cent since the end of 2020. Yet at least Singapore has a world-class public housing system that houses 80 per cent of Singaporeans, the vast majority of whom are owner-occupiers.

Moreover, the government ensures that supply keeps up with demand. This year, it will offer 10 sites for private housing development – many of them outside the central region which is more affordable for homebuyers – amounting to 11,110 units, the highest annual new supply since 2013.

The same cannot be said for Australia. Only 172,000 dwellings were completed last year, the lowest annual number in a decade. A migration-fuelled surge in housing demand has collided with a restrictive planning system that constrains supply to cause rents to rise 35 per cent since the start of 2020.

Other factors, notably high construction costs and a sharp tightening in monetary policy that might not yet have run its course, have exacerbated what the government’s National Housing Supply and Affordability Council calls a “long-standing [housing] crisis”.