Unit rentals experienced the biggest price drop in more than 15 years, marking a historic rent price fall of 3.2 per cent over the June quarter, new data shows.
Rental prices fell across most major capitals as a result of the ensuing coronavirus pandemic, Domain's latest rental report shows.
Sydney and Hobart units recorded the steepest quarterly fall on record with units in Sydney tumbling as much as $50 a week in the city and eastern suburbs and $40 a week in the northern suburbs.
“For the past two years Sydney unit rents have tumbled annually as tenants benefited from heightened investor activity in previous years, as completed off-the-plan apartments add to supply,” Domain senior research analyst Nicola Powell said.
“Tenants now have the novelty of choice [and] the rapid rise in advertised rentals have put pressure on rents.”
Between March and June advertised rentals surged by 13 per cent across Sydney, lifting by 43 per cent in the city and east and 29 per cent in the inner west, as a wave of short-term rentals converted to long-term as border closures curtailed international tourism.
Deteriorating unit rents have now forced Sydney’s gross yields to a record low of 3.66 per cent
Median house rent prices
^ Source: Domain
Powell said Melbourne, which is particularly exposed the halt in overseas migration, student population and tourism, saw rental prices in Melbourne fell over the June quarter for both houses and units due in part to advertised rental listings lifting 64 per cent.
“This has created a discounting war, forcing one-third of inner Melbourne landlords to slash asking rents in an attempt to secure a tenant,” Powell said.
“Many short-term leases have converted to long-term, increasing rental choice.”
Over the June quarter house rents were steady in Sydney, Adelaide and Darwin, with all other cities weakening.
The most expensive capital city to rent a house in is Canberra, where asking rents continued to grow, after overtaking Sydney prices in early 2019.
Asking rents for Canberra houses increased 4.5 per cent over the year from $550 per week to $575, while in Sydney prices remained unchanged year on year sitting at $530.
“Despite rental prices sliding over the quarter, rental conditions remain competitive as tenants compete in the third tightest capital city rental market,” Powell said.
“For investors, unit gross rental yields remain attractive considering they offer the second highest of the cities, as rental conditions have begun to tighten again.”
Median unit rent prices
^ Source: Domain
Hobart, which over recent years has experienced a tourism boom, saw house and unit rents slip from the peak achieved last quarter driven by landlords moving quickly to secure longer-term tenants in order to retain cash flow during this time.
House rents which surged 36 per cent and unit rents 41 per cent over the last five years, have since declined by $20 and $35 a week from March to June, stalling the Tasmanian capital's annual growth.
Domain noted that rental asking prices for units had now fallen back in line with Darwin and Brisbane, tied as the second most affordable capital in Australia.
“Despite the recent falls, Hobart still holds the lowest vacancy rate, and remains the tightest rental market of all the cities,” Powell said.
Darwin was the only capital city house rents held stable over the quarter and year, while most others fell over the quarter.
Unit rents in most other capitals fell over the June quarter but Darwin held steady.
“For investors, steady rents and affordable purchase prices have propelled gross yields to the highest of all the major capitals [and] unit gross rental yields are the highest in more than 15 years,” Powell said.
Property investors, struggling with falling rents and rising vacancies, now face a further cash flow crunch as the number of empty rental homes languish on the market.
According to recent research from industry data provider Suburb Trends, more than 60,000 rental properties analysed across June currently sit empty for over 21 days—a 46.1 per cent jump compared with May.
Homes typically listed for Airbnb have also flooded into the rental market, further adding to supply.
With approximately 120,000 Airbnb properties available for rent across Australia analysts also expect around 30,000 properties to transition into the long-term market amid the lockdown.