When rental falls, so too would property price

Do you believe the condo rental is dropping even for units with KLCC views or nearby KLCC? Let’s look at Singapore first. According to Singapore’s major newspaper The Straits Times, prices of high-end condominiums in Singapore continues to drop and the major reason is because of falling rents. It gave a new examples such as one unit in The Sail which was sold for S$1,475 (RM4,270 per sq ft). At this price level, it is the lowest for more than 5 years. In Cairnhill, a four-bedroom unit measuring around 3,000 sq ft was sold for about $1,300 per sq ft. This was a price last seen since 2007. While some of these were still sold for a profit, there are already units where the owners were selling at a loss. One example, all three deals at Orange Grove Residences in 2016 were with a loss of nearly S$1 million (RM2.89 million). Note, this is LOSS.
Actually, this situation is not limited to just Singapore. Coming back to condos nearby or around KLCC, the rental is softening and the renters have so many more cheaper choices. My friend’s condominium was rented out only recently after being put on the market for more than 2 months. The rental she was asking for had to be reduced continuously when she learnt that there are newer condo units being rented out for even lower than her unit! Viewings are plenty and non-stop. However, with more choices, it meant that renters were really spoilt for choice!
KLCCcondorentalPrices for some of the less core areas are under even more pressure. This is because everyone is trying to look for cheaper alternatives. Condo oversupply meant that it’s either renting out at a lower rate or having to pay the whole mortgage amount every month. Not an easy choice currently. Oh yeah, take a look at the rental prices for some quite attractive condos nearby KLCC. The information is from iproperty.com.my Just over 1 year ago, my friend could still rent out her older condominium units for over RM3,000. Today, there are plenty of choices for below RM3,000 and newer too. For some owners who just could not hold on with such low rentals, they would be selling and definitely for a lower price. No buyer would buy at a higher price when the rental is weakening today. Happy renting.
written on 18 Apr 2016
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  1. Hi Charles
    The rental market is surely much more reflective of the real demand and supply for housing need. What is quite strange over the past few years is that the rental yield for landed and condo are so low as compared to the house price. What is the logic to earn 2% and 4% net rental yield respectively if you need to service the bank loan at 5%?? In layman term, you are spending more money to pay bank for the debt services every month as your rental income is much lower than the debt services. This mean you only hope for this property investment is that the house price will increase considerably in the next few years so that you can make some gain and compensate the losses you suffered during the holdings periods (when you rent out the house).
    From my very limited observation, house price is likely coming down over the past 12 months. I have been tracking condo and landed in selected areas and i notice the prices of a few mid-size apartments are falling from 500k plus a year ago to 400k plus now. The landed price also drops slightly from around 950-980k to 900k plus now.
    I am guessing whether the general price decline over the past 12 months is 5-15% for high-rise and 3-5% for landed? Anyone happy to share some info here?
    Personally, I am guessing that the house price will generally decline similar quantum (i.e. 5-15% for high rise and 3-5% for landed) for the next 12 months until market recovery in end-2017. Any comments on this?
    P/S: I am a part time property investor. Hope you don’t mind my above 2 cents.

    1. WK, we share. ROI is low not because it’s dropping but because prices rose too fast and sudden. Look at periods of 2009 till 2013. Yes, agree with observation of some falling prices for condo, mostly in secondary areas though. Landed, the price range is widening and yes, some are lower compared to only two years ago. If sentiment remains negative, perhaps a bit more adjustments. Actually even when we look at the price per sq ft or the actual price for new launches, it’s also more attractive these days. My personal thought is to buy now if one can hold. Do not buy overvalued ones because holding may b even longer. Cheers and thanks for sharing your observation. Everyone benefits.

  2. I hope i have crystal ball to sneak peek on year 2017 🙂 Nevertheless, I think WK was visioning instead of guessing. As we can seen that some property gurus had started to tell the world this year is a good year to buy. Also, there’s some discussion forum going on e.g lowyat forum saying that Q2 2017 property will slightly boom a bit.
    I know some fellows are holding 2% to 4% rental yield for residential is because they’re waiting for boosters to be happened such as MRT station, Highway, Malls, or etc. Really happen or not I really dunno. I am fully agreed what Charles saying “do no buy overvalued”. 🙂

    1. When you have the crystal ball, please tell me too!

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