Rent Results give property investors something to smile about

Some good news for property investors - rents are on the rise.

Over the past 12 months, rents have increased in all capital cities except for Perth and Darwin with the rate of annual rental change higher over the past year than it was over the previous 12 months in each capital city except Canberra.

On a national basis, weekly rents increased by 0.1% in December 2017 to be 0.3% higher over the final quarter of 2017 and 2.7% higher over the 2017 calendar year. 

Capital city rents are -0.1% lower over the quarter and 2.9% higher year-on-year while regional market rents are 1.2% higher over the quarter to be 3.0% higher over the past 12 months.

Across the capital cities, rents are lower over the past three months in Sydney, Brisbane, Perth and Darwin and higher elsewhere.

Median weekly rents nationally are recorded at $420 for houses and $425 for units.

Across the combined capital cities, house rents were recorded at $457/week and unit rents at $449/week while across the combined regional markets rents were $351/week for houses and $349/week for units.

Rental growth remains moderate but has lifted over the fourth quarter compared to the third

Rental rates increased by 0.1% nationally in December 2017 with capital city rents unchanged and regional rents up 0.5%. 

The recent disparity between growth in rents in capital city and regional markets is mirroring what is being seen with dwelling values.

At the end of 2017, weekly rents were recorded at $421 nationally, with figures of $455 across the combined capital cities and $350 across the combined regional markets.

Over the month, rental rates increased in Melbourne (+0.1%), Adelaide (+0.5%), Hobart (+0.9%) and Canberra (+0.9%), were unchanged in Brisbane and Perth and they fell in Sydney (-0.3%) and Darwin (- 0.3%).

Taking a look at the current median rents, Sydney is substantially more expensive than all other capital cities for houses ($599/week) and units ($561/week).

Historically Hobart has been the most affordable capital city in which to rent however, with strong rental growth over the past year it is now cheaper to rent in both Adelaide and Perth than it is to rent in Hobart. 

Rental rates have been increasing across most capital cities and those in which rents have been falling the rate of decline has slowed.

This does seem a little counterintuitive given the large volume of housing supply additions over recent years, heightened level of investor activity in the housing market and consistent trend of low household income growth.

In Sydney and Melbourne in particular, supply additions have been significant over recent years as has demand for housing from investors, but affordability remains stretched and population growth remains substantial which is creating competition for rental stock as new households moving to these cities look for accommodation and lower income households remain locked out of home ownership, instead having to rent.

Canberra and Hobart are seeing growing housing demand with relatively low levels of housing stock additions over recent years.

In Brisbane and Adelaide rents are increasing albeit at a moderate pace while in Perth and Darwin rents have continued to fall over the past year, albeit at a reduced rate of decline.

All capital cities except for Canberra have seen a stronger annual change in rents over the past year compared to the previous year

Over the final quarter of 2017, rents rose by 0.3% nationally which was greater than the 0.1% over the previous quarter but the weakest fourth quarter for rental growth since 2014.

Combined capital city rents were unchanged over the quarter while combined regional markets recorded growth of 1.2%.

For the capital cities it was a moderate slowdown from the 0.1% growth in the third quarter as well as being slower than the 0.3% increase in the fourth quarter of 2016.

Across the individual capital cities, rents fell over the quarter in Sydney (-0.3%), Brisbane (-0.1%), Perth (- 0.7%) and Darwin (-0.5%).

Rental rates were higher over the quarter in Melbourne (+0.3%), Adelaide (+0.9%), Hobart (+2.1%) and Canberra (+1.6%).

The quarterly change in rents was lower than the previous quarter in Sydney, Melbourne and Darwin, unchanged in Brisbane and higher elsewhere.

Compared to the fourth quarter of 2016, the change in rents over the December 2017 quarter was greater in all capital cities other than Sydney, Melbourne and Canberra.

Throughout the 2017 calendar year rental rates have increased by 2.7% across the nation with combined capital city rents climbing 2.6% and combined regional market rents rising by 3.0%.

The annual rate of rental growth had slowed from 2.9% the previous quarter but was higher than the 1.1% over the 2016 calendar year.

Across the combined capital cities, annual rental growth was lower compared with the previous quarter (2.8%) but higher than the previous year (0.9%).

In the combined regional markets, rental growth is steady from the previous quarter (3.0%) but much higher than over the previous year (1.6%).

Rental rates were lower in 2017 in Perth (-2.5%) and Darwin (-1.5%) while they rose in Sydney (3.0%), Melbourne (4.3%), Brisbane (0.2%), Adelaide (3.1%), Hobart (9.4%) and Canberra (4.9%).

The annual change in rents was lower over the quarter in Sydney, Melbourne and Canberra but higher elsewhere. 

When compared to the same quarter last year, the annual change in rents was higher across each capital city except Canberra.

Overall the data indicates that although rental growth has accelerated over the past 12 months, the quarterly data is pointing to softer growth.

The first quarter of each year typically shows strong positive seasonality, so it will be interesting to see how growth over the first quarter of 2018 compares to the first quarter of 2017.

As this data has shown, the final quarter of 2017 was relatively weaker for rental growth compared to the previous year.

After trending much lower over recent years, rental yields have begun to steady

Dwelling values fell over the final quarter of 2017 and while rental growth also slowed it remained positive which resulted in steady gross rental yields.  

As at the end of 2017, gross rental yields are recorded at 3.63% nationally compared to yields of 3.61% at the end of the third quarter of the year and 3.71% at the end of 2016.

Across the combined capital cities gross rental yields are currently recorded at 3.32% and they sit at 4.94% across the combined regional markets.

At the end of the previous quarter capital city yields were 3.30% and regional market yields were 4.94% while a year earlier yields were recorded at 3.40% and 5.07% respectively.

Yields have firmed slightly as values have started to decline however, gross rental yields remain at near record low levels.

Across the capital cities, gross rental yields at the end of 2017 were recorded at: 3.12% in Sydney, 2.89% in Melbourne, 4.34% in Brisbane, 4.23% for Adelaide, 3.87% in Perth, 4.96% in Hobart, 5.86% in Darwin and 4.42% in Canberra. 

Compared to yields at the end of the previous quarter, yields were firmer in Sydney, Adelaide, Darwin and Canberra but softer elsewhere.

In comparison to 12 months earlier only Sydney and Darwin currently have higher yields.

The low yield profile across Australia’s two largest cities, which are also the cities that attract the largest investment demand, suggests that most recent investors, despite the low mortgage rate settings, are likely to be utilising a negative gearing strategy to offset their cash flow losses against their taxable income.

With gross yields so low now in these two cities we may start to see investors turn their attention to other cities where housing is more affordable and rental returns are superior.

If rental growth continues to outpace dwelling value growth we may see some further repairing of gross rental yields which currently sit at or close to historic lows.

Key rental and yield statistics

Source: Corelogic

About Cameron Kusher Cameron Kusher is Corelogic RP Data’s senior research analyst. Cameron has a thorough understanding of the fundamentals such as demographics, trends & economics. Visit www.corelogic.com.au