Amid the muted growth in the overall rental market, Hobart remained the best-performing capital city in terms of rents, figures from CoreLogic show.
Hobart rents were up 5.8% over the year to January, the strongest growth amongst all state capitals. Adelaide and Perth followed, with rental gains of 2% and 1.9%, respectively.
The overall rental market, however, remains generally weak, with rents rising marginally by 0.5% from the previous month and 1.3% over the year.
However, despite the slower growth in rents, the market seems to be showing signs of improvement, said Michael Yardney, director of Metropole Property Strategists.
"The improvement in rental rates can be attributed to a tightening in rental supply," he said in an analysis for Property Update.
The national vacancy rate currently sits at 2.2%, down from 2.3% a year ago, according to SQM Research. Six of the eight capital cities have vacancy rates of below 2.5%. The other two have vacancy rates slightly above 3%. Furthermore, SQM Research figures show that there was a 14.8% decrease in listings in December, with Sydney and Canberra reporting the biggest declines.
Also read: Prices Could Rise As Vacancies Remain Low
There are concerns, however, about the rising house prices, which dilute rental yields. In fact, the combined gross yield across capital cities at 3.5% was at its lowest in March 2018.
Sydney, which leads the nation in terms of price growth, reported a gross rental yield of 3%.
Higher rental yields, however, were seen in cities where rental conditions have outpaced the growth in housing values, said CoreLogic head of research Tim Lawless.
"Despite overall weak housing market conditions, Darwin's gross rental yields are the highest of any capital city at 5.8%, which is a reflection of housing values falling more than rental rates," he said.
Hobart also registered strong rental yields in January at 5%.
Lawless said the level of gross rental yields is still higher than the average three-year fixed-rate for investor loans at 3.48%.
"This rate is still slightly lower than capital city gross rental yields, implying that more properties will be showing a positive cash flow for investors, and paying off a mortgage may be more affordable than paying rent in many areas," he said.
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