Property investor vacancy rate way higher?

by Paul Ho (iCompareLoan.com)

What are the good properties in Singapore to invest in? Which are the places with the best rental rates and lowest vacancy rate? These are important questions that a property buyer needs to look at.

If you are planning to buy a place to rent out, where would you buy?

Some would say, Orchard, some would say River valley and others would say Jurong and so on.

So where exactly is a good place to buy for rental demand?

We take a look at the URA’s vacancy rate and here is what it says.

Table 1: Vacancy Rate for Private Residential Units by Market segment, URA.

So in recent years, it seems that Core Central Region (CCR) has the most vacant units. Core Central Region refers to district 9, 10, 11, core planning region and Sentosa. As the prices of properties in CCR tends to be higher, it is only natural that the CCR costs more to rent. That is perhaps the reason why it has more vacant units.

But hang on, OCR (Outside Central Region) has the lowest vacancy rate. Does this mean that rentals must be great in OCR? Outside central region refers to the outskirts and out of town areas, such as Jurong, Woodlands, Sengkang, Punggol, Tampines, Pasir Ris, etc.

So let’s rush to buy in Punggol, Sengkang, woodlands, Jurong!!!

Statistics do not tell the whole story

Let’s consider the scenario of 9.6% vacancy in CCR and 7.2% in OCR.

What if I tell you the actual vacancy rate is much higher?

If there are 100,000 units in CCR and the vacancy is 9.6%, that means 9,600 units are vacant.

So it is safe to say that 9.6% of the owners are not able to rent out their units.

Actually that is wrong. Because many owners buy to stay in it, hence they are technically not in the rental market. So if we exclude this number the entire story will become rather scary.

Table 2: CCR, OCR, RCR Private Residential Vacancy Rate and Investor Vacancy Rate, URA, iCompareLoan.com

We define Investor ownership rate as those who buy primarily for renting out for an income.

Note: The property stock are approximate. The Investor ownership rate is not captured in statistics when we wrote in to URA to ask, hence is only a guesstimate for illustration purposes.

For CCR, historically there is a 30-40% foreigner purchase, and there are a lot of demand from expatriates to stay within city centre where they work and hence from anecdotal evidence, has a higher percentage of people buying to rent out. Investors Ownership could be as high as 50% of total stock.

OCR (outside central area, i.e. Outskirts) is traditionally for residential use, such as new developments in Sengkang, Punggol, Hougang, Jurong, Woodlands, Yishun, Sembawang, Tampines, Pasir Ris, etc. and many more. Although some regional centres such as Jurong, Woodlands and Tampines have sprung up, perhaps there is only 25% of all property stock within OCR is owned by investors.

The reason is simple, the units will not be vacant if they are bought for own use. Hence if we consider the investor ownership rate and the vacancy rate, then the result could be reversed.

The vacancy rate for Investors could come in at 19.2% for CCR (Based on 50% Investor mix), while that for OCR (Based on 25% investor mix) could come in at 28.8%.

If this scenario is true, then how good or bad a region is in terms of rental demand will really depend on how many people are buying to rent out.

In this case, our believe is that Outside Central Region (OCR) supposed lower rental vacancy is a death trap for unsuspecting property investors thinking that it is a good region to invest in.

All in all, property investing is about understanding the target rental market so that you can manage your vacancy risks regardless of where the region may be. There will always be pockets of good rental potential developments and those that will struggle to rent out.

What do you think?

If you are unsure, you can call a Mortgage broker for a discussion on financing or do your own Singapore Property market research.

If you are buying to stay, you are very safe, as you are your own guaranteed Tenant. If you have already had several properties, perhaps refinancing home loan is also a choice you can make.

This entry was posted in Property.
This entry was posted in Property.