Rental yields rise amid steady market growth

By Our Reporter
Representational Photo by HiveBoxx on Unsplash

CoreLogic’s recent Quarterly Rental Review reveals a nuanced landscape in the national rental market, with rental values increasing by 1.6% over the September quarter, a 60 basis point drop from the 2.2% rise witnessed in the June quarter. Despite this overall slowdown in rental appreciation, there’s a silver lining as national house rents are now outpacing unit rents, growing at 1.7% and 1.3% respectively over the three months leading to September.

The subtle shift between median house and unit rents played out interestingly; a narrowed gap of $33 in May stretched slightly to $36 in September. One significant driver behind this dynamic is the continual shortage of rental listings, which has nudged the national vacancy rate to a new record low of 1.1% in September. This corresponds to a rental shortfall of approximately 47,500 listings as of October 1st.

Diving deeper into the urban versus regional narrative, the capital city rents continued to outshine regional rents with a quarterly growth of 1.9% compared to 0.7% respectively. Darwin and Brisbane took the lead among the capitals with rental growth rates of 3.3% and 2.5% respectively over the quarter, while the pace of rental growth eased in Perth, Melbourne, Sydney, and Adelaide.

The report also shed light on the national gross rental yields which dipped three basis points to 3.69% in August but saw a recovery to 3.71% in September. This ebb and flow in rental yields was mirrored across the combined capitals with a mild easing from 3.51% in June to 3.49% in August, before a slight uptick to 3.50% in September. The regional market, however, exhibited a bit more volatility over the quarter.

Among the capitals, Darwin emerged with the strongest dwelling rental yields at 6.55%, followed by a rise in Melbourne’s yields to 3.40%. Sydney’s yields remained stable at 2.99%, whereas Perth, Hobart, Brisbane, Adelaide, and Canberra experienced minor declines ranging between five and 11 basis points over the quarter.

Brisbane and Darwin rode ahead with increases in unit and house rents by 3.0% and 3.7% respectively, while Hobart and Canberra trailed, marking declines across both property types. The pinnacle of rental costs remains in Sydney, holding its position as the country’s most expensive rental capital across all property types.

On the contrary, Adelaide ceded its title of the cheapest rental capital to Hobart, now with a median rental dwelling value of $529 per week, although both cities tied for the lowest median unit rental value at $436 per week.

The CoreLogic Quarterly Rental Review paints a complex yet cautiously optimistic picture for investors eyeing the rental market. With gross rental yields showing a rising trend and a stable cash rate alongside the allure of potential capital gains, there’s a tangible incentive for more investors to venture back into the market. The ABS new housing finance data corroborates this narrative, showcasing a 3.0% upswing in new investor loan commitments over the three months to August. The narrative of rising rental yields amidst a backdrop of a steady yet slow rental appreciation outlines a multifaceted rental market as we step into the final quarter of 2023.

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