(Jan 26): Singapore rents dropped for the first time in more than three years, giving respite to tenants on the back of increased housing supply and expectations for an economic slowdown.

An index of rents for private homes in the financial hub fell 2.1% in the fourth quarter compared with a 0.8% rise in the previous three months. That's the first decline since the third quarter of 2020, according to figures published Friday by the Urban Redevelopment Authority. It's also the steepest drop since the wake of the global financial crisis in 2009.

The decrease, which was spread across all market segments, comes after a significant ramp-up of supply amid a surge in housing costs. About 21,300 private residential units were completed last year, the most since 2016 and more than twice the number in 2022, according to the URA.

"With the increased competition, landlords are more willing to accept lower prices, especially for luxury segments," said Christine Sun, chief researcher and strategist at real estate agency OrangeTee Group. Tenants are also more open to looking for cheaper options in suburban areas, she added.

An influx of wealth during the pandemic helped the city-state defy a downturn seen in other hubs like Hong Kong, but also triggered local discontent and ensuing government cooling measures.

Despite the latest cooldown, private residential rents still grew 8.7% last year.

Local demand from buyers has also propped up home prices, which rose 2.8% in the fourth quarter from the previous three months, bringing the annual increase to 6.8%, according to data on Friday.

Still, demand has moderated. The pace of home price increases slowed for a second consecutive year, while sales of private residences — including secondhand — fell to the lowest in seven years.

The first two residential launches of 2024 saw "subdued take-up" rates of 17-30%, according to a note this week by Citigroup Inc. analyst Brandon Lee. That compares with an overall 46% for projects last year, the report said.

Developers are also becoming more cautious. A recent sale of two land parcels by the government attracted muted interest, with one near the city's Gardens by the Bay receiving a single S$770 million (US$574 million) bid, nearly 30% lower on a per-square-foot basis than another plot in the vicinity sold last year.

Analysts are divided on the outlook for rents and prices this year. Most expect private residential rents to drop, with Bloomberg Intelligence estimating a decline of as much as 10% on high vacancy rates and economic headwinds. But OrangeTee's Sun still sees rents increasing 2-5% due to reduced housing supply entering the market this year.

At the same time, Morgan Stanley is predicting a 3% drop in residential prices, while Citigroup expects a 4-5% gain. Bloomberg Intelligence sees prices moving sideways with some downside risk.