Property investment yields are lifting off their historic lows

The CoreLogic March 2019 quarterly rental review shows that although rental growth is slowing, dwelling values are generally underperforming which is pushing gross rental yields higher from their historic lows.

At the end of March 2019, gross rental yields nationally were recorded at 4.10%, up from 3.77% a year earlier and they are now the highest they’ve been since June 2015.

Gross rental yields across the combined capital cities are sitting at 3.84% up from 3.49% a year earlier and are now the highest they’ve been since May 2015.

Across the regional markets, yields have also pushed higher over the year from 4.91% to 5.06%% and they are now the highest they’ve been since November 2016.

Throughout the individual capital cities, gross rental yields at the end of the March 2019 quarter were recorded at: 3.48% in Sydney, 3.65% in Melbourne, 4.55% in Brisbane, 4.42% in Adelaide, 4.25% in Perth, 5.08% in Hobart, 5.95% in Darwin and 4.90% in Canberra.

Compared to yields at the end of the previous quarter, yields were firmer in all capital cities and it was similar when comparing to yields from March 2018 with yields higher across the board except in Hobart where they were unchanged.

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 at such low levels in these two cities 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 are superior.

With rental changes continuing to outpace dwelling value changes it is likely that rental yields will continue to firm over the coming months and quarters, particularly in markets like Sydney and Melbourne.

Key rental and yield statistics

About Tim Lawless Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au