Rising private rents in recent years have prompted more homeowners to rent out their homes and then move to lower-rent homes to earn the difference in rent. Analysts have warned homeowners that a significant drop in rental income could add to their financial burden.
According to Sun Yanqing, vice president of research and consulting at Orange Ease, many homeowners are renting out their homes because of the continued rise in rents in order to earn a good rental return. Some homeowners need extra income to pay their mortgage because of rising mortgage rates.
In an interview with the Lianhe Zaobao, she said that apart from being in a favourable location, houses with good rental returns may also be large in size, have good amenities or be close to prestigious schools.
The practice is common among the elderly, mainly to earn rental income for their regular expenses. Some are renting out their homes to others because they live with their children or relatives.
"We have also found that some families rent out their houses and then rent houses within one kilometre of the primary school boundaries in order to enrol their children in school. This phenomenon has become more prevalent since the increase in the number of places at Key Stage 2C of Primary 1 enrolment, as more places are reserved for children with no direct connection to the school, and enrolment conditions are based solely on the distance between the home and the school."
There are also some large families who wish to live together and rent large private homes, so rent out their respective smaller homes.
Altitude Real Estate principal executive Lim Kim Choi says: "Some families need more space to live together under one roof, including married children. Others rent houses that allow three generations to live together."
While the benefits of renting out a house are numerous, he warned homeowners must carefully weigh whether it is profitable to do so as they have to face the hassle of moving and the location of the rented accommodation may not be convenient. In addition, some tenants are difficult to cope with and may add to the homeowner's worries and stress.
Lim Kim Choi cautioned that it is more difficult to obtain high rents in a downward rent cycle, and the house may also be left vacant due to a lack of tenants, while the financial burden may increase as homeowners have to pay for both the mortgage and the rent of the rented house at the same time.
Ismail Gafoor, president of Bonaire Industries, echoed similar sentiments, saying that homeowners must be aware of the dilemma of not being able to find a tenant during a downturn in the market, and having a lease that has not yet expired.
In addition, before renting out a house, apart from making sure that the rental income is higher than the monthly mortgage and the rent of the house you are renting, you have to factor in other costs and expenses. This includes real estate taxes on one's own house and condo maintenance and management fees, Ismay noted.
The slowdown in our economy, coupled with an increase in the supply of new private homes this year, has caused overall local non-landed private rents to fall from rising to falling, slipping 2.2 per cent year-on-year in May.
According to Savills' May study, the overall island-wide average median rent for non-landed private residential properties of one-bedroom to four-bedroom units fell by 2.2 per cent year-on-year, contrary to the 2.4 per cent year-on-year increase in April.
The average median rent for non-landed three-bedroom private units fell 3.2 per cent in May from a year earlier, but was 17.8 per cent higher than a year earlier.
Among the districts, the highest rents were concentrated in District 4, around Cypress Hill, Sentosa and Telok Blangah, where the median rent was as high as $9,300 per month. The median rent was $9,300 per month, followed by rents in District 1 and Orchard and District 9, where the median rent was $8,500 and $7,500 respectively.
Savills Chief Executive Officer, Mr Law Yiu-ching said: "The days of non-stop increases in private rents appear to be over as more private homes come on to the market and construction disruptions caused by the coronary disease outbreak have been resolved. In addition, economic challenges have put pressure on tenants' rental budgets. This rental correction puts the market back on a sustainable footing, which will help boost the economy in the long term."