Rental market conditions remain subdued

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A recent report from CoreLogic showed that rental markets were restrained but held reasonably firm in 2018 compared to dwelling values that slid further and growth rates that were reduced.

Across the combined capital cities, weekly rents were unchanged over the year. Rents in Sydney and Darwin, meanwhile, were down by 3% and 5.8%, respectively. Hobart and Canberra posted more encouraging results— up 5.8% and 5.3%, respectively, during the period.

The study also found that yields are trending upwards as values fall.  While rental markets remain mild, rental conditions have outperformed dwelling values across most areas. This has allowed an increase in rental yields.

The gross rental yield rose from 3.4% in 2017 to 3.7% in 2018 across the combined capital cities, while the combined regional markets’ gross yields improved from 4.9% to 5%.

Hobart and Darwin were the only capital cities whose gross rental yields dropped over the year. Hobart dwelling values (+8.7%) increased faster than rents (+5.8%). As a result, the gross yield declined even more over the year. Darwin similarly reported a drop in rental yields due to rental rates (-5.8%) falling more than dwelling values (-1.5%).

Melbourne, Sydney and Perth, on the other hand, showed the largest yield improvements. Although rents were down 3% in Sydney, dwelling values were down by a much larger 8.9%.  This paved the way for yields to increase by two basis points.

The yield improvement in Melbourne was more substantial due to rents rising by 2.4% over the year, while dwelling values were down 7%. This resulted in a four-basis-point increase in gross rental yields.

Rents in Perth have been consistently tracking upwards coming from their low base through the year, up 2% over the year, while dwelling values were down 4.7%. The net result has been a two-basis-point rise in Perth rental yields.

Overall, CoreLogic’s report showed that while yields are improving, gross rental yields remain well below long-term average levels, especially in Sydney and Melbourne.

 “Considering rental conditions remained relatively soft, a recovery in gross rental yields is likely to be a long and gradual process,” said Tim Lawless, CoreLogic head of research.

Lawless also said that there might be a shift in the behaviour of investors, in line with the possible negative gearing changes.

“With amendments to negative gearing policies likely should we see a change of government, investors may shift focus towards markets offering stronger rental conditions and where there is potential for higher rental yields which should help to insulate against any changes to taxation policy,” he said.

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