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Higher occupancy cap for larger homes a 'short-term fix' to stabilise rental market: Analysts

SINGAPORE: A temporary move to increase the occupancy cap for larger homes may offer a short-term fix to stabilise the rental market while supply catches up, but its impact on the market remains “indeterminate”, said property analysts.

The Housing and Development Board (HDB) and the Urban Redevelopment Authority (URA) announced on Wednesday (Dec 20) that the occupancy cap will be increased from the current limit of six unrelated people – defined as those not from the same family unit – to eight from Jan 22, 2024, to Dec 31, 2026.

The increased occupancy cap will cover HDB flats that are four-room or larger, as well as living quarters of HDB commercial properties where the living quarters are equivalent to or larger than a four-room flat. It will also include larger private residential properties that are at least 90 sq m (969 sq ft).

Occupancy includes the property owners and the occupiers, as well as the tenants.

IMPACT ON RENTAL MARKET IS UNCERTAIN

HDB and URA said the sharp increase in residential rents from 2022 reflected “exceptional tightness in the market” due to COVID-19, coupled with “robust rental demand”.

Mr Lee Sze Teck, senior director of data analytics at Huttons Asia, said the move may offer a “short-term fix” to stabilise the rental market while supply catches up, but it is not expected to have a significant impact on rents.

Rents might increase if there is more demand for larger private and HDB homes. On the other hand, some tenants may give up the smaller private homes and HDB flats to rent a bigger one, he said, adding that rents for smaller homes may “face some pressure”.

“On balance, rents are likely to stabilise and possibly face downward pressure in the short term.”

Ms Christine Sun, senior vice president of research and analytics at OrangeTee and Tie, said allowing more people in larger rental homes can “mitigate demand pressures within the rental market”.

“In turn, this could contribute towards a greater equilibrium between supply and demand and lower the rate of rental price growth,” she added.

But the impact of such a move on the rental market is “indeterminate”, said Dr Lee Nai Jia, head of real estate intelligence, data and software solutions at PropertyGuru Group.

“On one hand, we may find more demand due to the increased affordability. On the other hand, the supply of listings may rise correspondingly.

“Asking rents for the whole unit may rise in the short term, even though each individual renter pays less. That said, we expect the impact to be limited to some segments of (the) market,” Dr Lee added.

Ms Wong Siew Ying, head of research and content at PropNex, said the move is “probably a win-win” for the market – tenants may have more options while landlords of larger homes can take in more tenants and enjoy higher rental income.

“However, it may not impact the market evenly, landlords with investment properties in areas that have a large supply completion could likely face more competition for tenants, and may have to adjust their asking rents accordingly,” she added.

Related:

MAS says increase in home rents may moderate in coming quarters as housing supply ramps up

Occupancy cap for larger HDB flats and private homes to go up to help ease rental pressure

WHO WILL BENEFIT?

Some companies that employ foreign workers, such as those from the food and beverage and service sectors, will benefit from the temporary increase in occupancy cap as they will require fewer rental units to house their staff, ERA Singapore’s key executive officer Eugene Lim said.

Some firms rent HDB flats or private apartments for foreign workers to live in.

This move is also expected to benefit lower-income groups, students, blue-collar foreign workers, and big families, Ms Sun said, adding that these tenants will have the option of sharing a unit with more people and saving on rental costs.

“Many foreign students and blue-collar workers have been struggling with the increasing rental costs and inflation. Allowing more people to share rental units can help reduce the cost of living.

“This will not only benefit these individuals but also help to attract and retain foreign workers who are essential in supporting sectors like manufacturing, nursing, service, and retail industries,” she added.

Ms Sun also said that families of seven to eight people, who previously had to rent two separate units to live together, will no longer need to do so.

For instance, a couple with two children, two elderly parents or relatives, and a domestic helper can now reside together in a single unit. This will also help to lower their rental costs.

This move will encourage more families to stay together and take care of their elderly family members, she added.

Related:

Singapore rental market slows as tenants resist hikes, turn to alternatives

Commentary: What's behind the housing crunch for foreign workers in Singapore?

OTHER CONSIDERATIONS

Minister for National Development Desmond Lee said the increased cap will only apply to larger properties as these can “accommodate more occupants with minimal impact on those around them, in order to maintain a conducive living environment for the larger community”. 

After the increased cap is implemented, the authorities will “monitor the situation closely and take action against any infringements or serious disamenities, including revoking the homeowner’s rental approval”, he added.

Ms Sun said the temporary increase in the occupancy cap may “lead to some challenges” such as increased noise levels and more people sharing common facilities like lifts or condominium amenities.

But Ms Wong said that since the increase will only apply to larger residential properties, it may help alleviate challenges related to noise and other disamenities.

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