INVESTORS worried that the return on their residential investment properties might have taken a tumble can relax.
Rental yields held their ground last month as falling prices in the city centre and city fringe region and sustained rental demand propped up these returns.
Data from the Singapore Real Estate Exchange (SRX) found that overall yields for private non-landed homes was 4.06 per cent last month, easing slightly from the 4.23 per cent in the fourth quarter.
SRX calculated the yield by dividing the average per square foot rent over 12 months by the average psf price of units sold last month.
Suburban homes posted the best yields of 4.02 per cent, city fringe homes pulled in 4 per cent while city centre homes had the lowest yields of just 3.24 per cent.
A total of 2,174 leases were inked in April by agencies under SRX, which collates and displays transactions by major property agencies, accounting for about 85 per cent of resale transactions in the market.
Experts say yields are expected to hold at current levels in the short term. However, the sustained health of the rental market will depend on where the economy is headed, they add.
C&H Properties key executive officer Albert Lu said that the slight dip in rental yields last month does not indicate any sustained downward trend.
But if the global economy should take a sharp turn for the worse, leading to foreign workers leaving Singapore, then rental demand, and hence yields, could be aversely affected, he added.
Mr Lee Sze Teck, senior manager of research and consultancy at Dennis Wee Group, thinks that yields in suburban areas could be compressed due to the upcoming supply of completed homes, even as home prices hold steady.
However, it is the opposite scenario in the city centre and city finge areas where yields may have risen as prices fall.
Data from the Urban Redevelopment Authority showed home prices falling 0.6 per cent for both the city centre and city fringe areas in the first three months of the year.
Mr Tan Kok Keong, OrangeTee's research and consultancy head, however, thinks that with the occupancy rate of suburban homes at more than 95 per cent, yields are likely to hold firm.
Rather, it is the yields of city centre homes that might be compressed as occupancy rates have been coming down in those areas, putting pressure on rents. This will, however, be a small drop since prices are also softening.
'Rental yields will likely remain around this level. Until we see a larger scale expansion in the finance sector, it's hard to see yields creeping up,' he added.
Mr Tan said the rental market might face a challenging period from the second half of 2013 onwards when a bumper supply of public and private homes starts flooding the market.