According to CoreLogic, rents were up 0.7% in October, roughly equivalent to the September reading (0.6%), but lower than the trend rate of rental growth earlier this year.
Some of the strongest rental markets, such as Perth and Darwin, are now seeing a clear easing in the annual trend of rents. In most other regions the trend in rents is generally holding firm or accelerating.
Over the past three months the largest rise in rents has come from Sydney, up 2.4%, followed by Brisbane, regional Queensland and regional New South Wales (all up 2.3%). At the lower end of the spectrum was Perth, where rental growth has slowed abruptly with rents only rising 0.6% over the three months ending October.
Unit rents underperforming relative to houses
Across the combined capitals, unit rents have generally under- performed relative to houses, rising 1.9% and 1.6% respectively over the three months ending October. Across the regional markets, unit rents have shown a higher quarterly growth rate relative to houses (2.3% compared to 2.1%).
Gross rental yields have continued to diminish in October, falling to a record low nationally of 3.27%. Sydney (2.44%) and Melbourne (2.74%) are showing the lowest rental returns due to lower rental growth relative to a high rate of capital gain.
The unit sector has historically shown a higher gross yield profile, and that remains the case, with the gross yield on a unit holding 55 basis points above houses nationally.
Rate of rental growth easing
Although the rate of growth in both housing values and rents are easing, we are likely to see housing prices continue to rise faster than rents over the coming months. If this is the case, rental yields are likely to trend even lower. While low yields are not too concerning for investors at a time when interest
rates are so low, a rise in interest rates could see a larger portion of investors facing ownership costs that higher than their rental income.
International borders soon to impact on rents
With international borders reopening, CBD apartments and those located near education institutions should soon see their vacancy rates fall, and rents increase.
Unit values appreciating at a slower rate
Apartments continue to record lower rates of growth, compared to houses. In Sydney, when units are deducted from the data, houses have risen a staggering 30.4%, whereas units have managed just 13.6%. In Melbourne, it’s 19.5% against 9.2% respectively. This trend is less evident regionally, where the performance gap is much slower.
With affordability now a significant factor for houses, we expect demand to increase for units – particularly as international borders open. The gap between the median price for Sydney houses and units is now a whopping $500,000.
Tightening credit availability is anticipated to begin rebalancing market conditions towards the end of the year.