Will Rents go down because of Covid?

Business Times Article Today reported:

How does this impact Investors looking to rent out property for passive income?

First of all, the year on year changes are negligible (1-2%). The rents for condo market seemed to have come down 18% since 2013, but I would argue that the reasons are more attributed to the increase in supply of condo units for rent (leading to downward pressure in rental prices).

The impact of covid-19 on rentals would probably be felt most be properties targeted for rentals by expats, and if they are sent home on cost cutting measures, or the company decides to pull out of Singapore, that’s when there would be increased voids, leading to a greater supply of units once more.

As you can see, rental prices are really back to Economics 101, Demand Vs Supply.

Before I go into the Demand side of things, let’s take a look at this graph which would be representative of rents in most places in the world over time:

Over the last 30 years, we’ve seen a few recessions, but rental prices continue to climb steadily. The pace of increase may have slowed in certain years, but if you know of anyone who has been renting property before, they probably would tell you that the landlord has never wanted to reduce rent, only to increase it to keep pace with inflation.

Moving on to Demand..

People may think there is less demand for rental properties in a recession, given people may have lost jobs or taken a pay cut. However, in countries such as the UK, and many other western countries, there is a growing renting culture. If the person is previously considering buying a property vs renting, and is negatively impacted by covid-19, do you think he would be more likely to press on with a purchase, and take a home loan, or to rent in the time being?

I think it’s obvious that most would rent, as the financial commitment would be much lesser. This actually leads to an increase in demand for rental properties, keeping rents relatively stable and in fact going up steadily over time.

As such, property remains one of my favourite asset classes that is truly #recessionproof.

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