Rental yields hit record-low level

by Julia Corderoy19 Feb 2016
Rental yields currently sit at record-low levels after rents failed to grow at the same pace as house prices over the past decade.

Looking at rental growth over the past decade across the combined capital cities, data from CoreLogic RP Data show rental rates have increased by 50.7% over the period, or 4.2% per annum. This is much lower than the increase in home values, which have increased by 72%, or 5.6% per annum, over the same period.

CoreLogic RP Data research analyst Cameron Kusher says this represents a “historically weak market” for rental growth. Rental yields are now at an historic low of 3.5%. 

Perth and Hobart are the only cities in which yields are now higher than they were 10 years ago while in Brisbane they are unchanged over the period. 

Melbourne and Darwin have seen the greatest softening in gross rental yields over the past decade. Melbourne, where gross yields are the lowest of any capital city, have slipped from 4.2% ten years ago to 2.9% currently.

Kusher says there is reason to expect rental yields to drop further.

“With rental rates falling and yields sitting at record low levels at a time when housing construction is at its highest level on record it is reasonable to expect that rents and yields will slip further over the coming years.”

He also says the low yielding rental environment may change the focus of investors over the coming year. 

“Whereas over recent years their focus has clearly been on value growth, attention could begin to become more balanced where investors place a higher degree importance on the yield profile and potential for positive cash flow,” Kusher said.
 

COMMENTS

  • by SEQ Broker 19/02/2016 9:50:49 AM

    Okay Mr Morrison. Take note.
    Low rental yield means investors are taking a hit, changing Neg gearing my be the straw that gets them to sell up.
    Once you see investors leaving the resi market, and you will if ROI is not there, you will see a glut of cheap property as prices drop. Who does this hurt, not the investor but the home owner. They cant sell or upgrade because they have no equity meaning the real estate industry cops a hiding. Bye Bye Jobs.
    Moreover, I can tell you from experience once prices drop valuers are super keen to compare 8 star energy efficient beautiful new homes to fibro shacks with the same number of beds and baths. So Bye Bye building industry too. Neg gearing wont make a lick of difference if values dont work. So Builders, Construction workers, admin etc jobs all gone too.

    Message - dont mess with the system.

  • by Papery 19/02/2016 5:37:44 PM

    Has anybody been offered a rent cut lately (excluding the unfortunates caught in the mining town dolldrums).