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Poor rental growth likely to continue in 2016

2015 was a lackluster year for rental growth in Australia with rents increasing by just 0.3% in 2015; not exactly the news investors are looking to read about but good news for those looking to rent.

We’ve never seen rental growth as sluggish as it is at the moment.   house_rent October

Furthermore, we’re expecting to see more of the same over the coming months due to increases in the supply of new housing, rental stock and a further slowdown in migration rates.

The only cities to see an increase in weekly rental rates were Sydney with an increase of 1.9%, Melbourne (2.2%), Hobart (0.6%) and Canberra (1.9%) while rates fell in Brisbane by (-0.3%), Adelaide (-0.2%), Perth (-8.0%) and Darwin (-13.3%).

Market Snapshot

  • Combined capital city rental rates are $486/week for houses and $464/week for units
  • Dwelling rental rates across the combined capital cities are recorded at $483 per week and they have increased by just 0.3% over the past 12 months which is a record low rate of annual growth (result based on records back to December 1996).

Rental-index-results

More Details

A comparison between December 2015 and December 2014 shows in 2014 annual rental growth was slowing but was tracking at a much higher 1.8% which highlights just how much the rental market eased throughout 2015.

The construction boom across the capital cities, coupled with slowing population growth, low mortgage rates and the recent heightened level of activity from investors are the major contributing factors to the slowing rental growth in 2015.

Although Sydney and Melbourne saw the largest ramp up in new housing supply, both cities still recorded rental increases over the year, although rental growth is slowing relative to 12 months earlier.

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It is clear that the increase in investment stock continues to provide landlords with little scope to lift rental rates while the low mortgage rate environment provides little incentive to push yields higher.

We envisage that growth in rental rates is likely to remain weak or potentially slow even further over the coming months.

The good news for those looking to rent is the possibility that rental rates will fall even further over the coming year.”

While the news for renters will be welcomed, investors may be facing weaker capital gains coupled with little in the way of rental growth or yield.

The large pipeline of residential construction activity and recent high levels of investment demand means that renters are likely to continue to have plenty of choice.



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About

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


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