High-end rental rates look set to continue their downward trend, with market watchers predicting a price correction of between five and 10 per cent next year stemming from tightened budgets and an increasing supply of completed luxury homes.
This would bring rents of luxury homes to below $5 per square feet (psf) per month.
Rents of top-tier condos tracked by Savills Singapore showed a drop for a sixth consecutive quarter, bringing rents down 7.4 per cent to $4.88 psf per month in Q4, from $5.27 psf per month in the year-earlier period.
As the number of vacant units increase in tandem with the surge in project completions, investors who have bought private homes for rental investment could encounter significant risks in the months ahead, warned Savills Singapore.
The Urban Redevelopment Authority (URA) said that 91,869 new homes will be released to the market over the next five years, more than half of which have been sold.
Some major completions over the past year include Caspian (712 units), Mi Casa (457 units), Reflections (1,129 units) and The Trizon (289 units).
The vacancy rate in the Central region was 7.9 per cent in the third quarter of 2012, above the five-year average of 7.5 per cent.
Vacancy rates in the eastern and western regions of Singapore were 4.5 per cent and 4 per cent in Q3, higher than the 3.5 per cent and 3.6 per cent five-year averages, respectively.
"The emergence of shadow spaces when owners relocate into their new premises may prove to be an additional challenge for both the leasing and sales markets. If demand from population growth does not rise in tandem and interest rates start to rise, a significant rental correction cannot be discounted," Savills said in a report released on wednesday.