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ISCOVER
Staff Reporter
Despite a 3.5 per cent increase in weekly rents over the past year, there has been virtually no change to yields.
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Yet, research conducted by RP Data found investor buying activity levels appear to be on the increase.
“Over the past 12 months, we’ve seen rental growth across the combined capital cities outpace home value growth, however it has not been significant enough to see any substantial improvement in rental yields over the year,” RP Data’s Cameron Kusher said.
Over the 12 months to April 2013, capital city rental rates increased by 3.5 per cent for houses and 3.3 per cent for units.
Across the combined capital cities, the weekly median rent for a house is $474 per week, and for a unit it is $440 per week.
Mr Kusher said that while higher than inflation, we are seeing relatively measured rate of growth in the rental market.
A comparison of capital city rental rates to capital city value growth shows that over the period from April 1997 to April 2013 overall growth in home values was significantly greater than the growth in rents; rental rates increased by a total of 82.3 per cent compared to a 218.4 per cent increase in home values over the same period.
“Although we have seen lower levels of value growth for rents, rental rates over the past five years have increased at an average annual rate of five per cent compared to much more sluggish growth of two per cent each year for home values,” he said.
“Despite the fact that value growth has been comparatively slow over the past five years, there has still been strong demand for housing, which is reflected in the comparatively strong increases in rents.
"Interestingly, between 1997 and 2004, rental growth was significantly lower than value growth and as a result, there was a substantial compression of gross rental yields over that period. Between 2004 and 2013 home value growth was much slower than over the previous period and subsequently, there has been no further significant movement in gross rental yields.”
Based on Mr Kusher’s examination of the findings, gross rental yields recorded only a minimal change over the past year; house rents increased from 4.1 per cent to 4.2 per cent over the year to April 2013, while unit yields have remained unchanged at 4.9 per cent.
Yet despite this, it seems investors are only too keen to re-enter the property market, with preliminary data from the Australian Bureau of Statistics indicating as much.
“With the return on cash at bank falling further in May, it is likely that investors will look for different ways to obtain a return on investment; clearly at the moment investing in housing is one way to secure a superior return,” Mr Kusher said.
“With lower interest rates and moderate home value growth, we would expect that the basis point spread between official interest rates and gross rental yields on houses to increase further over the coming months. Subsequently, this would see that the potential for housing investment would be even more attractive for those investors focussed on yield.”
