Rents have been flat and yields declining, but that may now change

Australian Property Monitors’ (APM) June rental report indicates a fairly stagnant rental market for the end of the financial year, with house rents up nationally by only 0.7 per cent for the June quarter and annual growth at only 3.1 per cent. Units fared better, with national growth at 3.5 per cent for the same period and annual growth at 4.2 per cent. But APM economist Matthew Bell says there could be good news ahead for property investors because as leases begin to expire, a strong labour market will mean rental prices will begin to increase towards the end of the year.

The APM report showed that Sydney and Canberra were the only two major capitals to show any growth in median house rents, with a 4.3 per cent increase for Sydney in the June quarter and 2.3 per cent for Canberra.

All other cities saw no growth or a decline in weekly asking rents, with Darwin taking the biggest hit at -5.5 per cent. Melbourne and Brisbane house rents dropped by 1.4 per cent for the quarter, while Perth and Hobart remained unchanged.

In the unit market, the median weekly asking rent increased in Darwin by a whopping 12.5 per cent over the past year, even though the June quarter figure was down by 6.3 per cent. Sydney, Australia’s largest rental capital, outperformed for the June quarter with a 4.8 per cent rise in the weekly asking rent for units. Melbourne showed an increase of 2.9 per cent, Adelaide and Canberra of 1.9 per cent, while Perth and Hobart once again flat-lined with nil growth.

Bell suggests that even though vacancy rates remained low and unemployment continued to fall, landlords may have opted to keep a lid on rents due to poor consumer sentiment for the June quarter.

According to APM data, gross weekly rental yields for houses were down across all cities for the year to June, with Melbourne taking the hardest hit at minus seven per cent, followed by Brisbane (-5.3 per cent), Perth (-5.1 per cent), Darwin (minus five per cent) and Adelaide (-2.4 per cent).

Gross unit rental yields fared slightly better in most instances apart from Darwin, recording a decrease for the year of 9.4 per cent and Melbourne with a drop of 6.7 per cent. Hobart and Adelaide both enjoyed an increase in gross rental yields for units of 2.3 per cent and 1.2 per cent respectively.

Of course this just indicates that property values grew significantly more than rents did over the year.

Bell adds, “The exodus from the rental market to the ownership market that occurred in 2009 is still having an effect on asking rents in most capitals. However, the alternative option for renters of moving into ownership has become less attractive as property prices have risen significantly in most cities in the last year and interest rates have risen a long way off their lows, with increases on the way. As leases expire and are renewed however, it is expected that a robust employment market, rising incomes and low vacancy rates in most capitals will start seeing asking rents increasing again.”

So as property price growth slows down it’s likely for rentals to start growing again – but that’s the way the property cycle has always worked.


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