Australian Rental Rates Continue To Dive

As annual rental rates continued to plummet across Australia, and are now -0.6% lower over the past year, weekly rents across the combined capital cities also fell by -0.4% in June 2016 according to the CoreLogic June Rent Review.

Currently, combined capital city rental rates are $487/week for houses and $469/week for units. However, while a majority of capitals saw a drop in rental rates over the month, on an annual basis, half of Australia’s capital cities actually recorded a rise in rents. These included Sydney (0.4%), Melbourne (1.7%), Hobart (4.6%) and Canberra (1.9%).

According to CoreLogic research analyst Cameron Kusher, the large rental falls in Perth (-8.6%) and Darwin (-16.2%) have pulled the combined capital average lower, with rents in Brisbane (-0.3%) and Adelaide (-0.4%) also lower over the year.

Mr Kusher said, “It is anticipated that the weakness in the rental market will persist and where on an annual basis, we will see rents fall even further over coming months.” At a combined capital city level, gross rental yields were recorded at 3.2% for houses in June 2016 and at 4.1% for units, each of which are sitting at record low levels.

Mr Kusher said, “A year ago, gross rental yields were recorded at 3.5% for houses and 4.4% for units across the combined capitals, indicating a fairly sharp compression of yields over the year.” “It’s also likely that we’ll see yields compress further over the coming months. However, this will be dependent on growth in home values as well as the direction of rental rates.

“As a result, capital growth, which has slowed from its peak, will continue to be a much more important factor for property investors than rental returns, “he said.

Points of interest:

• Changes to rental market may have repercussions for older stock, particularly units as tenants look to move into newer dwellings and making it harder for owners of older units with fewer amenities to compete with better located and facilitated new unit stock, particularly if there is little pricing differential.
• The factors forcing rental rates lower include: lowest wages growth on record, relatively high levels of housing investment following record highs recently, historically high levels of new construction (most of which are units which are more than twice as likely to be rented) and the slowing of population growth which creates less overall demand for housing.
• The combination of all these factors means that landlords have little scope to increase rents. There are reports that some landlords are having to reduce rents in certain areas in order to maintain their renters.