The Monetary Authority of Singapore recently released its semi-annual (macroeconomic assessment) report pointed out that local accommodation inflation is likely to rise further next year.
The report said that expiring leases are renewed at the current higher rent levels, pushing accommodation inflation higher in the coming quarters.
Meanwhile, more foreigners are returning to the local workplace, but only a modest increase in new units available for rent, further pushing up rental market demand.
Accommodation is one of the components of the Consumer Price Index (CPL), reflected through rents, and a factor in the overall inflation rate.
Accommodation accounts for approximately 22% of overall inflation. So far this year, accommodation inflation is 4%, compared to 1.4% a year ago.
It is estimated that accommodation inflation will rise to between 5% and 7% next year. This will be the fastest growth rate since 2012.
The return of non-resident employees to the local area, delays in construction due to the coronary disease epidemic, and the 15-month wait for private homeowners to buy resale HDB flats after selling their homes have all contributed to the difficulty in finding a home in the rental market.
With the local job market remaining strong and companies attracting more foreign manpower, demand in the rental market will continue to rise next year.
More private homes will be built next year, but many of the units are likely to be owner-occupied.
In addition, many tenants are choosing to sign longer leases of around two to three years, meaning that there will continue to be fewer units available for rent in the market.
Rents for private housing rose 26% to 29% this year and will rise 13% to 16% next year; HDB rents rose 26% to 28% this year and are expected to rise 15% to 18% next year.
The local rental market has been dominated by tenants for many years.
From 2011 to 2020, private home rents never rose more than 2 percent per quarter, with rents even falling 13.3 percent from the third quarter of 2013 to the fourth quarter of 2017.
Private rents rose by 8.6% in the third quarter of this year, the last time such an increase was seen in 2007, before the global financial crisis. At that time, there was a large number of collective sale projects in the market, causing demand for rental housing to rise.
The supply in the rental market became even tighter next time, as the number of HDB flats reaching the minimum age of occupancy (MOP) decreased significantly.
This year there are about 30,000 units, next year there will be just over 15,000 units. This is a 50% decrease. And even for those who have reached the minimum age of residence, homeowners are not necessarily willing to rent.
The last big rent increase was followed by a correction due to the recession triggered by the global financial turmoil, whether the same will happen this time, no one can predict how serious the next recession will be and how long it will last.