Stabilised rental growth boosts investor confidence in APAC

Hong Kong and Singapore face market pressures.

The prime global residential rental market is showing signs of stabilisation, with a quarterly growth of 1.1% in the second quarter of 2024. While annual growth has slowed, the stabilisation is providing a boost in confidence for investors eyeing the Asia-Pacific (APAC) market. 

Christine Li, Head of Research at Knight Frank Asia-Pacific, noted that certain gateway cities in the region have seen particularly strong growth over the past 12 months.

“Despite the slowdown over the last 12 months, we are still seeing about 8.4% growth, driven by markets like Melbourne, Sydney, the Gold Coast in Australia, Auckland in New Zealand, and Tokyo in Japan,” Li said.

Tokyo’s prime rental market has been particularly strong due to a combination of factors, including the introduction of higher-tier, larger apartments. This has spurred relocation demand among renters seeking new dwellings. The influx of expatriates returning to the city has further boosted demand.

In contrast, Hong Kong's prime rental market has not recovered as robustly. Mainland Chinese renters are primarily focusing on lower to mid-tier properties, keeping rental prices in the prime segment stagnant. Li explained that this market segment typically ranges from HKD 40,000 to HKD 50,000 per month, limiting growth in the prime category.

“In Singapore, we are seeing strong supply coming to the market, which has added downward pressure to the rental market,” said Li. “A lot of renters have transitioned to permanent residence or ownership, and that has resulted in a lack of rental demand.”

The stabilisation of rental growth across APAC is seen as a positive indicator for investors. “In times of volatility, investors tend to stay on the sideline,” Li explained. “But with stabilisation, investors are probably more confident to enter the market, especially for longer-term investment horizons.”

Additionally, recent interest rate cuts have been larger than expected, providing further encouragement for investors to re-enter the market. The lower cost of borrowing could create new opportunities for those looking to capitalise on the steady rental growth in key APAC markets.