The BTR(Build-to-rent) model may not yet be a well-known concept in Singapore, but its emergence and subsequent appeal spans decades. In delving into how this asset class with its underlying investment opportunity is becoming relevant to our home ground, we will need to first uncover how the nation’s rapid economic and infrastructural growth influenced the population’s sociocultural makeup, and deep-rooted desire for homeownership be it private property, or in Singapore’s public housing system.
Of course, this sentiment is not unique to Singaporeans alone, but to understand the country, we need to understand how the need for public housing arose. When Singapore first became independent, living conditions were mostly squalid for the rapidly growing population, consisting of slums and overcrowded squatter settlements as few were able to afford proper housing. The solution to this problem became known as HDB flats, which are synonymous with affordable, sanitary, and safe public housing in Singapore. This resulted in 90% of Singaporeans realising their life-long dream of being homeowners, with 80% residing in them sometimes over generations in the same flat. (HDB.gov) HDB flats are no longer seen merely as fulfilling the need for shelter but has been ingrained into Singapore’s consciousness as representing a degree of comfort, security, and a sense of belonging.
It’s no surprise that over the Covid-19 pandemic, people find themselves with opportunities for inward reflection and for putting family dynamics to the test. With many discovering themselves, needs have evolved amongst those of age to acquire an abode of their own. As the millennial generation matures, natural progression dictates that this generation slowly dominates the property market.
According to Property Guru’s latest Consumer Sentiment Study H1 2022, there is a strong preference to buy instead of rent amongst Singaporean millennials. However, those who rent cite these as their top 3 reasons:
1. Insufficient savings
2. No urgency to buy right away
3. Government regulations making it unfavourable to buy
Compounded by inflation and rising housing prices, the desire to purchase a home has also gone hand-in-hand with the desire for longer-term rentals, especially for younger millennials.
This divide between renting and buying signals the difference in life stages within the entire millennial cohort with the impetus to rent formed largely by younger and/or single individuals – contributing to the creation of investment opportunities in rental markets in Singapore, in this period. Meanwhile, older and/or married millennials who typically have spent a longer time in the workforce have more savings and are more inclined to purchase.
A 2021 CNA article explores the probability of the BTR model being a sought after property type presenting residents benefits like more space, more flexibility, more affordability, and chances to downsize. As a result, creating investment opportunities for “many global institutional investors.”
Conversely, the UK and the US are no strangers to the BTR model, and the popularity of these housing options is a boon to many institutional investors. They not only tackle the housing shortages within cities where young professionals have been flocking towards due to a profusion of job opportunities, these builds are also tailored to the needs of tenants with amenities that enhance its residents’ standard of living— improving their overall quality of life.
With that said, let’s look into what BTR is, exactly.
With housing prices outpacing income in industrialized countries, there has been growth in a category of housing called “Build to Rent”. A prominent feature in the property market in the United Kingdom and the United States — BTRs are purpose-built housing apartments or single-family homes in which residents stay on yearly rentals, rather than laying down hefty deposits and signing onto 30-year mortgages; this asset class is characteristically owned by institutional investors and managed by professional operators.
Some private rental sector (PRS) schemes are owned by “buy-to-let” landlords with a handful of properties and are often not purpose built, with zero focus on facilities benefiting renters. These property types can also come in the form of individual flats spread throughout a town area. Unlike the former property scheme. BTR developments are constructed with renter-focused amenities in mind, geared towards long-term rentability. These developments are often situated in large cities, and are owned by property companies that provide institutional investors with alternative residential real estate investment opportunities.
Experience has shown that consumer economics is driving the BTR sector: US Home Prices increased by 20.6% (Mar 21 to Mar 22 – according to Zillow), while household income only increased by 2.4% (2021 over 2020 – US Department of Housing and Urban Redevelopment). Cash-strapped millennials who can’t afford mortgage down-payments are driving the BTR sector. They are saddled with student debt, and BTR suits their stage in life.
Statistics from Hunter Housing Economics also show that BTR homes are now 6% of new home builds, and USD $85 billion will be put into US BTR projects, showing a steady demand for rental homes to address economic limitations as was reported by Bloomberg (28 January 2022).
As the statistic and trends suggests, this shift in focus towards rental accommodation is prominent in the consumer market. Monthly mortgage payments that would usually be residents down payments on mortgages are now yield income for real-estate companies. (Savills Spotlight: Suburban Build to Rent, 14 Sep 2021).
Furthermore, the general BTR sector in US, UK and Japan have proved resilient during the pandemic: Both Invitation Homes and American Homes 4 Rent reporting occupancy levels in excess of 97% through 2020.
In summary, BTR can be a scalable proposition to investors, benefiting them in the following number of ways:
The BTR model looks to boom beyond 2022 and gains popularity following another year of record transaction volumes. This asset class has displayed a remarkable show of resilience over the past few years with the ability to weather the impact of Covid-19 making it a sustainable investment opportunity that satiates growing institutional investor appetite. In their race to supply demand, there will be increasing emphasis on innovative design with a strong focus on the ESG agenda. With it, the requirements for “green premiums” will become routine in the years to come.
