Dissecting the Market

by External18 Sep 2013
Where does the property market really stand at the moment? RP Data senior research analyst Cameron Kusher breaks it down for you.
 
Rental rates across the capital cities have been increasing over the past year and have risen at a faster pace than inflation. Over the 12 months to April 2013 capital city house rents have increased by 3.4% compared to a 3.0% increase in unit rents. Although rental rates have been increasing, the commensurate increase in home values has seen no change in rental yields over the year. Capital city houses have a current gross rental yield of 4.2% and units have a yield of 4.9%.
 
Across individual capital city markets, Perth and Darwin have been the stand-out performers in terms of rental growth. Over the past year, these two markets have recorded rental growth of 10.4% and 11.4% respectively. Throughout the last few months, the rate of annual rental growth across these two cities has been decelerating perhaps indicating a softening of rental demand. It is also important to consider that both of these markets have recently experienced an increase in sales transactions.
 
There is a significant divergence between the performance of the Perth and Darwin markets compared to the other capital cities. The next best performers in terms of rental growth, Brisbane and Sydney, have recorded annual rental growth of 3.1% and 2.8% respectively. The annual rate of rental growth in these two cities is fairly stable in Brisbane and is starting to accelerate in Sydney. Melbourne and Adelaide have also recorded increases in rents over the year, up by 2.0% and 1.5% with growth slowing in Adelaide but increasing in Melbourne.
 
Finally we come to Hobart and Canberra where there are clearly no rental pressures present. Over the past 12 months, Hobart rental rates have fallen by -1.5% although the annual rate of decline has started to ease over recent months. In Canberra the annual rate of rental declines has remained fairly stable with rents -0.9% lower over the past year.
 
Rental rates rise when there is competition for rental accommodation so from these figures it is clear that there is very little competition for stock in Hobart and Canberra and moderate competition in the other capital cities other than Perth and Darwin where competition is clearly high.
 
Looking more holistically across the nation, rental growth over the past 12 months has been strongest within Perth regions and in those areas linked to the mining and resources sector. In particular there have been some quite large increases in areas linked to coal seam gas exploration. In Perth, rental growth has tended to be strongest over the past year within those suburbs closer to the city centre where house and unit prices tend to be much higher. This would suggest that if people aren’t buying their own home they are showing a strong preference to rent in the more desirable areas of the city.
 
Across the other capital cities, rents are tending to show the strongest levels of growth within the outer more affordable areas of the cities or the inner city suburbs. These two distinct regions also tend to be the locations in which you find the strongest investment yields, units in the inner city and houses and units on the outskirts of the city.
 
Overall, rents are growing at a slightly higher rate than inflation over the past year and I would anticipate fairly similar rental market conditions over the coming year. Lower interest rates may encourage more people to purchase their own home. In turn, rental growth may be slightly lower over the next 12 months especially if construction activity also increases.