A record surge in the supply of new homes is likely to trigger a drop in rents and prices by up to 15 per cent between now and 2016 amid tepid population growth, a report warned yesterday.
A total of 100,000 new private non-landed homes and 123,000 Housing Board homes are expected to be completed by 2017, said research house Religare.
This translates to a 7 to 8 per cent expansion in the yearly supply of new non-landed homes.
Mr Ku Swee Yong, chief executive of property consultancy International Property Advisor, said if the forecast pans out, it will be the fastest-ever growth in the supply of new non-landed homes.
The supply surge comes against the backdrop of projected slower growth in Singapore's population, due in part to policies to curb the influx of foreign workers.
The annual population growth is expected to ease to 1.7 per cent - or 400,000 people - by 2017, from 2.9 per cent over the previous five years.
Based on the number of new homes, vacancy rates are slated to rise from 5.6 per cent currently to 8 to 9 per cent by 2016 due to the slower population growth, forcing landlords to reduce asking rents, Religare said.
"Historically, rents have corrected whenever vacancy rates reached or went above 7 per cent," it added.
In addition, the projected fall in rents will have a knock-on effect on prices, Religare said.
This is because lower rents will lead investors to pull out from the market, reducing transaction volumes and lowering the average selling prices of new homes, it explained. "We expect price growth to remain muted (for the rest of this year) and to eventually turn negative in 2014."
Between now and 2016, rents and prices are expected to fall by 10 to 15 per cent, Religare projected.
However, some industry experts are less pessimistic.
Mr Ku noted that while there is a risk of oversupply, he expects rents and home prices to decline by 5 to 10 per cent over the same period.
He also pointed out that new HDB homes, which cannot be leased out immediately, would make up about half of the total supply of new non-landed homes, which will reduce the oversupply.
Under current HDB rules, owners are not allowed to lease their entire flats if they have not occupied them for at least five years.
Mr Ku also noted that some of the new units might be owned by buyers moving out of their parents' homes. This will also cut the supply of homes available for rent, he added.
Separately, a Macquarie Group report also estimated that home prices could fall by 3 to 5 per cent this year, due to the record number of new home completions. It said most owners of new non-landed homes will be seeking tenants.
"If this happens, (rental) yield spreads will narrow and weaker holders might be tempted to sell."