Evidence growing that rents and yield are on the improve

With property value growth flat over the September quarter and the market transitioning from a period of strong growth to relatively flat conditions, we have long expected that rental market activity would start to pick up.

Data included within the RP Data-Rismark Home Value Index shows that the anticipated improvements in the rental market are starting to come to fruition.

During the last quarter, capital city house rents nationally have increased by 3.3% and unit rents by 0.6%.  At the end of June 2010, the combined capital city gross rental yield for houses was recorded at 3.9% and 4.8% for units.  As at September 2010 there was a slight improvement recorded with house yields increasing to 4.0% and unit yields recorded at 4.9%.

rental dataSource: rpdata.com, RP Data-Rismark Home Value Index

Yield dataSource: rpdata.com, RP Data-Rismark Home Value Index

RP Data’s weekly rental listing data is reflecting the fact that rental accommodation is becoming much shorter in supply.  This week’s data showed that over the last four weeks there had been a total of 77,646 properties advertised for rent nationally, the fewest number of advertised listings in 19 weeks.  Total rental advertisements peaked during mid July with 91,498 advertisements over the month.  Since the peak, rental advertisements have fallen by -15.1%.  This result highlights that the rental market is tightening with fewer properties being available for rent.

Although the improvement in rents and yields has been slight to date, the higher interest rate environment, significant reduction in first home buyers and falling building approvals are all likely to contribute to heightened rental demand.  With these factors in mind, we expect that whilst the growth in residential property values is likely to be flat for at least the next 12 months, rental rates are likely to increase.  The higher interest rate environment will make it even more difficult for first home buyers to enter into home ownership and will likely dampen building approvals and commencements.  As a result, the lack of significant new rental market supply will result in ongoing tightening of rental vacancy rates, increased demand and subsequently competition for rental stock and ultimately higher prices being paid for rental accommodation.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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3 Responses to Evidence growing that rents and yield are on the improve

  1. Alex Barton November 5, 2010 at 1:44 pm #

    The recent ABS data showed prices down in five cities, and up in three, but a slight positive national figure (due mainly to strong Melbourne result). The question is what happens from here. Will Q4 be the first quarter to show a national fall. If so, that just might spook the public and falls could accelerate. But it prices rise in Q4 then the public will think the worst is over and we’re back on an uptrend. Public sentiment is everything. To be honest I don’t think the political will exists for more housing stimulus. Both parties are too weak, they’ve got more important things to think about, and frankly I’d wager they’re happy with this flat result. A ‘soft landing’ is exactly what the RBA and government wanted to achieve, and that’s what they’ve got here. If prices fall then yields (if not rents) by definition must rise.

    Alex Barton
    Australian Property Forum
    http://s4.zetaboards.com/Australian_Property

    • RP Data Research November 5, 2010 at 9:46 pm #

      The RP Data-Rismark Series recorded virtually no movement over the September quarter (-0.4% in seasonally adjusted terms and +0.1% over the month) – you can see the detailed tables for each city here: http://www.rpdata.com/images/stories/content/pressreleases/rp_data_rismark_home_value_index_october_29_2010.pdf. The RP Data-Rismark series typically leads the ABS stratified median series by about three months. Based on these numbers it looks like the market is in for a soft landing and my view is that we are likely to see some further small negative movements month to month mixed with some small positive movements – in essence a flat market that is likely to be evident over at least the next 12 months. During this time wages are likely to show a decent rise, providing some modest improvements to affordability – and as you say there is also likely to be rental pressure which will improve yields for investors.

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