Rental prices remain flat but yields increasing

Rental prices have recorded their slowest growth rate in four years, with declining prices in Sydney and Perth, new figures from Australian Property Monitors have revealed.

But investors are being encouraged to enter the market, with rental yields now increasing and more growth expected in the next few years.

According to the latest September Quarterly Rental report, rental prices for units and houses were flat for a second consecutive quarter, with Sydney and Perth both recording declines.

Nationally, rental growth was only 1.3% in the 12 months to September, with only small rises seen in Brisbane, Hobart, Darwin and Canberra.

Australian Property Monitors senior economist Matthew Bell says the market has favoured renters over landlords, “with the weakness in the employment market reducing the ability of renters to agree to increases, and mortgage costs remaining low for landlords”.

On a quarterly basis, Sydney rental prices for houses fell 2.2% to a median of $450, with Perth prices also falling 2.8% to $350. Prices remained flat in Melbourne and Brisbane, while Canberra recorded a marginal increase of 1.2% to $420.

Hobart prices increased 1.7% to $300, with Brisbane prices also increasing 2.9% to $360. Darwin recorded the highest increase of 4.2% to $500.

The results were not as good for units, with Melbourne, Brisbane, Adelaide, Hobart and Canberra all recording exactly 0% growth. Sydney and Perth prices both declined 1.2% and 2.8% respectively, while Darwin was the only city to record an increase of 10%.

However, investors are being told to consider entering the market as rental yields are improving. On a yearly basis for houses, Melbourne yields increased by 7.6%, followed by Adelaide and Hobart at 5.3% and 2.9% respectively.

For units, Hobart yields increased by 7.6% on an annual basis, followed by Brisbane at 6.5% and Melbourne at 2.7%. Bell says rising interest rates and encouraging unemployment figures suggest a positive outlook for the market, and maintains yields are still historically high.

“This result is not surprising, given the conditions of the weak economy and people’s expectations. But these factors are changing, and I’d be surprised if we had another quarter of flat growth.”

“Yields are historically strong for investors, and are at good levels. I can’t see housing prices having any significant falls in the next while, we are going to see rises and growth. For investors this is good, purely from a capital gains perspective.”