Residential property researcher CoreLogic says investors in the sector typically target capital growth but more may focus on rental income in the current ultra-low rate environment. However, it warns that conditions for rental yields are mixed.
The residential property rental market was at record low levels in the 2018/19 financial year, with a weak Sydney market dragging down the national average and obscuring some pockets of growth.
Rental rates rose in call capital cities except Sydney and Darwin during the 2018/19 financial year, and by 1.9 per cent in the regional market.
According to the latest CoreLogic Rent Review, capital city rents fell by an average 0.1 per cent in the year to June but picked up a little in the June quarter, rising 0.1 per cent.
Sydney rents were down 2.7 per cent over the year and down 0.3 per cent in the June quarter.
Melbourne rents rose 1.4 per cent over the year and rose 0.5 per cent over the June quarter.
The biggest increase was in Hobart, where rents rose 4.7 per cent over the year and 1.1 per cent in the June quarter.
Brisbane rents were up 1.5 per cent over the year, Adelaide 1.6 per cent, Perth 2.5 per cent and Canberra 0.8 per cent. Darwin rents fell 4.7 per cent over the year and fell 0.3 per cent in the June quarter.
Although rental growth is slowing, falling dwelling values are pushing gross yields higher.
CoreLogic says the gross rental yield is 4.14 per cent, up from 3.83 per cent a year earlier. Darwin has the highest yield, at 6 per cent, followed by Hobart (5.2 per cent), Canberra (4.8 per cent), Brisbane (4.6 per cent), Adelaide (4.5 per cent), Perth (4.3 per cent), Melbourne (3.7 per cent) and Sydney (3.5 per cent).
“With gross yields at such low levels in these two cities [Sydney and Melbourne], we may start to see investors turn their attention to other cities where housing is more affordable, capital gain opportunities are potentially better and rental returns superior.”
“As interest rates continue to fall and yields across most asset classes soften, rental returns from housing may become more appealing.
“Historically, investors are targeted capital growth but going forward investing for rental returns during an ultra-low interest rate environment may become increasingly popular.”
The average rent is $438 a week nationally – $466 a week in the capital cities and $380 a week in the regions. The median rent in Sydney is the highest, at $580 a week.
CoreLogic research analyst Cameron Kusher says: “Overall, the rental market remains quite mixed. Sydney accounts for a large share of renters, with annual falls in Sydney leading to a fall in the combined capital city index.”
Annual rental growth peaked at 3 per cent in 2017 and has been slowing ever since.
“Slowing rental conditions potentially point to stretched rental affordability, particularly in Sydney, and the effect of a large increase in housing supply and investor purchasing in recent years.
“In Sydney and Melbourne. The weaker rental market conditions look set to continue, with a high volume of new housing set to be completed over coming years, much of which has been purchased by investors.”