Investor boom to boost rental yields

Residential rental yields are beginning to stabilise in the wake of COVID-19

Investor boom to boost rental yields

Residential rental yields are beginning to stabilise in capital cities as the unit market stages a comeback from the impacts of the COVID-19 pandemic.

While property price growth continued to slow around the country last month, rental growth held reasonably firm, according to a report by The Australian. The national gross yield settled at 3.2%, the lowest rate on record.

The national rate for gross yield was still above that of Sydney (2.4%) and Melbourne (2.8%), according to data from CoreLogic. However, both Sydney and Melbourne showed a slight strengthening last month as rental growth crept higher than house-price growth.

Tim Lawless, director of research at CoreLogic, told The Australian that it was a good time for investors, who are returning to the property market in increasing numbers.

“At a time when we’ve seen more investors coming back into the marketplace, bucking the slowing trend and becoming a bigger proportion of the market, the stabilisation of yields is probably a good news story for that segment of the marketplace,” Lawless said. “Through this upswing, yields have been under this consistent downward trajectory and housing outpaced unit rentals down. But now, that’s stabilised. As we start to see interest rates rising, it does look like we’ll probably also see a reversal of yield compression, which might help to shore up investment across the Australian housing market.”

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Lawless said that rental yields could be hitting the bottom of their cycle after several years of compression, in which gross yields hit historic lows across most of the capital cities. Further recovery is likely if rents continue to rise faster than housing values, which is quite possible, The Australian reported. 

Yields are stronger in the smaller capital cities, with Darwin in first place at 6%, followed by Perth (4.4%), Canberra (3.8%), Adelaide (3.8%), Hobart (3.7%) and Brisbane (3.6%). Regional Australia still boasts the best yields, with a combined rate of 4.1%.