Rental yields lifting from record lows: CoreLogic

Although rental growth is slowing, dwelling values are falling at a faster rate which is pushing gross rental yields higher from their historic lows, according to CoreLogic's latest quarterly rental report.

The report found gross rental yields at the national level were at 3.95% at the end of 2018, up from 3.73% a year earlier, and the highest reading since July 2016.

Throughout the combined capital cities, gross rental yields were recorded at 3.43% in December 2017, rising to 3.69% by the end of 2018, the highest they’ve been since June 2016.

Throughout the individual capital cities, gross rental yields at the end of the December 2018 quarter were recorded at:

• 3.33% in Sydney
• 3.46% in Melbourne
• 4.47% in Brisbane
• 4.36% in Adelaide
• 4.09% in Perth
• 4.91% in Hobart
• 5.76% in Darwin
• 4.60% in Canberra.

The report said: "Compared to yields at the end of the previous quarter, yields were firmer in all capital cities except for Hobart, Darwin and Canberra and it was similar when comparing to yields from the end of 2017 with only Hobart and Darwin having lower yields."

"The low yield profile across Australia’s two largest cities, which are also the cities that attract the largest investment demand, suggests that most recent investors, despite the low mortgage rate settings, are likely to be utilising a negative gearing strategy to offset their cash flow losses against their taxable income.

"With gross yields at such low levels in these two cities we may start to see investors turn their attention to other cities where housing is more affordable, capital gain opportunities are potentially better and rental returns are superior.

"With rental changes continuing to outpace dwelling value changes it is likely that rental yields will continue to firm over the coming months and quarters, particularly in markets like Sydney and Melbourne.

"Meanwhile, Hobart, where values continue to climb rapidly, and Darwin where housing value falls have slowed but rents continue to fall sharply are likely to see further rental depression over the coming months," the report concluded.