Rental returns hit the breaks: RP Data

by Julia Corderoy07 Nov 2014
The price of renting is growing at its slowest pace in more than a decade as investor demand remains strong but new housing supply starts to hit the market.

RP Data’s monthly combined capital city rental market analysis for the past 12 months confirmed that this result was the slowest annual rate of rental growth since August 2003. The annual growth rate of the combined capital cities was recorded at 1.8%, which is less than the annual rate of inflation.

Cameron Kusher, research analyst for RP Data, says investors have less scope to increase weekly rents given the large supply of alternate housing options hitting the market.

“With a larger supply of new housing and low interest rates likely to drive further growth in home values we anticipate that rental growth will remain subdued over the coming year. In fact we may see the rate of rental growth slow further as renters see more and more accommodation options being built,” he said.

The rate of capital gains is outpacing rental growth, which means the heated investor market is chasing capital gains over rental returns.

“With such tepid growth in rents and such a high level of investment activity it is clear that most investors are buying residential property with a view to capital growth rather than rental returns,” Kusher said. 

However, investors should be wary as capital gains are beginning to stagnate. According to RP Data’s home value index released this week, combined capital city home values increase by just 1% – and the result was largely buoyed by the Sydney and Melbourne markets.

According to the rental market analysis, Sydney recorded the highest rental rate increase (3.5%). This was followed by Melbourne (2.5%), Hobart (2.4%), Adelaide (1.5%) and Brisbane (1.3%). Canberra, Perth and Darwin all experienced decreases in rental returns – at -4.9%, -3.1% and -0.1% respectively. 

Looking at all dwelling results at a combined capital city level, gross rental yields were recorded at 3.8% in October 2014, which is the lowest reading since January 2011.