HOME values and rents might have fallen in the past year, but investors in suburban and luxury condominiums might still enjoy a silver lining.
Despite the weak leasing market brought on by a housing glut, the hit on rents has not been as acute as the dip in prices, a report by Knight Frank showed.
This has propped up rental yields - the percentage return investors achieve on their properties - in these markets.
In simple terms, rental yields are derived by dividing the rental income by the price of the property. The goal is to pay as little as possible for a rental property and get as much rent as the market will bear to earn a strong return.
Average prices of high-end homes fell 7.7 per cent in the fourth quarter to $2,133 per sq ft (psf) from a year earlier, Knight Frank's analysis of a basket of properties showed, while average monthly rents fell 7.9 per cent to $5.35 psf in the same period.
That translates to a fourth quarter rental yield of 3.02 per cent - from 3.01 per cent a year earlier.
At Ardmore Park, for instance, home values in the fourth quarter last year were about $2,700 psf - well down from $3,600 psf a year earlier, caveats lodged with the Urban Redevelopment Authority showed. Monthly rents at the 330-unit freehold development, however, still eked out a small gain from $5.80 psf to $5.82 psf.
For mass-market condos, average values slipped 5.6 per cent to $1,020 psf while average monthly rents fell 6 per cent to $3.09 psf. Gross yields, as a result, held steady at 3.64 per cent in the fourth quarter from 3.65 per cent in the same period a year earlier.
But Ms Alice Tan, research head at Knight Frank, noted that investors who had picked up properties for a higher price a year ago would still face a squeeze in rental yields if leases were renewed in today's soft leasing market.
For the first time in four years, fourth-quarter rents fell 3 per cent while vacancy rates of private homes soared to 7.8 per cent - an almost 10-year high.
She added that yields are also affected by a property's tenure as freehold condos tend to fetch lower yields than their leasehold counterparts. Rents are typically determined by a unit's location, which excludes the premium investors have paid for the property's longer tenure, said Ms Tan.
City-fringe projects have taken the biggest hit. Average monthly rents in the fourth quarter slipped 8.9 per cent to $4.53 psf from a year earlier, as a deluge of 2,442 new mid-tier units heated up leasing competition last year.
Prices slipped just 4.9 per cent to an average of $1,570 psf, which dragged rental yields down from 3.61 per cent to 3.45 per cent.
But landlords of prime properties have also started to lower rental expectations since last October, noted Ms Tan, after prolonged vacancies.
"This may swing the demand back to city centre, and could happen very quickly in the next quarter," she said.
"Everyone is looking around because there's just a lot of supply."