Rising trend of rental guarantees

According to The Business Times, there has been a rising trend of developers offering rental guarantees to lure buyers in the current down-market. Far East Organization is offering rental guarantees for selected units in selected projects such as Orchard Scotts, Vida, River Place, Tanglin View and Icon. For Vida, which is located in Cairnhill Rise, Far East is offering a guaranteed rental yield of 5% a year. For units purchased under the the Belle Vue project under the deferred payment scheme, Wing Tai is provding a guaranteed income of 10% a year for two years on their downpayments. At the preview of The Mezzo project, Soilbuild Group Holdings offered a 6% annual rental guarantee for two years, apart from the interest absorption scheme.

We view the rental guarantees as a discounting mechanism without having to bring down the Average Selling Prices. In effect, it would translate to subsidizing the property prices by 5-10% depending on the rental guarantee conditions. The price differentials between developer sales and secondary market transactions especially in the upper mid and high end segment remains sizeable, relative to the same for the mass and mid-tier segments. The rentals subsidies and Interest Absorbtion schemes are effective discounting mechanisms to narrow the price differentials and entice home buyers.

That said, we expect the rental subsidies to aid in improving liquidity especially in the upper mid to high end segments and support base formation, thereby, improving the homebuying sentiments.


Click here for more Property News