Oversupply Squeezes Home Rental Market

Business 4 minutes, 31 seconds


Over two years ago, Nathan, now a 30 year old advertising executive, took the jump to make his single largest financial commitment — a two-storey semi detached house located about 15 minutes away from the capital.

He remembers feeling proud that he’s financially-independent enough to invest in his own property and venture in the rental market. The plan was to rent out the house and use the proceeds to settle his mortgage.

Young professionals such as Nathan are in the best position to do this because they can stretch out their tenor for longer time due to their young age.

Nathan took a $200,000 loan, payable in 15 years. He has estimated that by the end of the tenor, he would walk away with his own property, much it would have been paid for by rental income.

That would certainly be the case if there were enough tenants to rent to but the problem was that Nathan could not find anyone and he has been trying for nearly a year.

“It is tough times. Either that or I am not doing a good job of finding tenants,” he says.

Just to be sure, he enlisted his house with a property agency to increase the chances of getting a call but there has not been any enquiries.

As a result, Nathan has had to cut back on expenses because he has to bear the full weight of mortgage repayments which now take up most of his income. He’s also had to put off a wedding due to financial constraints.

Nathan’s predicament reflects the impact of the home rental market where residential supply overwhelms demand. The macroeconomic effect of falling oil prices is one big factor which had led to budget cuts and a fiscal deficit.

According to the World Economic Forum, prices fell down to US$35 per barrel by end of February 2016 from a peak of US$115 per barrel in June 2014.

Such news does not bode well for people like Nathan who coincidentally signed on the dotted line for a mortgage just as oil prices were dropping.

Shaun Hoon takes a drink of water to quench his thirst on a hot afternoon. He is in the meeting room in of INSPIRE Living, a home and lifestyle magazine, which he is the editor of.

He sits down and flicks through the monthly magazine to show the pages where residential properties are listed for sale and rental.

Two years ago, Shaun said most of the enquiries were centred on buying property but this is not the case now.

“Now, most people call because they want to sell something,” he says.

Oil prices are one thing but Shaun thinks the problem is exacerbated by other factors such as the market expectations of homeowners.

With the market already being down, homeowners cannot expect to fetch the same prices as before but not everybody thinks the same way.

“By right, there should be room for negotiation but this is not necessarily happening as it should be under current market conditions,” he said.

If many buyers and potential tenants for rentals can’t get a deal then residential properties would be left vacant which could lead to an oversupply in the market.

As long as buyers, tenants and property owners are negotiating with each other, Shaun thinks that the rental market strike a healthy balance of demand and supply although he does admit that some houses are harder to sell than others.

He said at this stage, most are looking to rent apartments at reasonable prices in line with the curret market and not the prices from five years ago.

After getting married about nearly two years ago, Thomas, a teacher in his mid-30s, decided to rent out his two-storey house and move into an apartment.

The house proved too big a task for the working couple who needed to put in a lot of effort for maintenance

He put the house on the market and set the rental price at $1,600 per month. The house was fully furnished and equipped with air-conditioning. Still, he ended up waiting for a year before giving up entirely on the idea.

“We’re open to negotiating for lower prices but we just couldn't find any tenants,” he says.

Now, Thomas and his wife are planning to move back into the house which needs to be tended so that it would not fall into disrepair.

Jack, a real estate agent, said oil prices have definitely impacted the property market overall but it serves as an opportunity for developers to come up with new models for housing.

For him, the problem is not just that property owners have warped expectations of prices for rental rates. It’s also because there are many houses that look the same.

“Everyone is building the same thing so potential buyers and tenants don’t see the point of having to pay more for a house when they can get the exact same one at a better price,” he said.

As real estate investors hold on to their dollars, those like Nathan will just have to continue to foot the bill. While things hasn’t gone exactly as planned, he comforts himself knowing that he’s paying for an asset.

If he stays thrifty with spending and holds on, he knows that he will get something out of his investment in the future. But that future is not now.

The Brunei Times