Rent rises to outpace house price growth over next two years: NAB

Rental yields should rise over the next two years, with rental growth forecast to significantly outpace house price growth over this period, according to the latest NAB quarterly residential property survey.

Property professionals surveyed by the bank expect rents to grow by 2.1% over the next 12 months and by 3.4% over the next two years, with rents growing in all states.

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However, nationally house prices are anticipated to grow by just 0.4% over the next year and 1.7% over the next two years.

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The September quarter survey suggests that the downward correction in national house prices may be slowing, with prices falling 0.7% in the third quarter following a 1.6% decline in the second quarter, with only WA managing minimal house price growth (0.1%).

Victoria remained the weakest market, with prices falling 1.1%, followed by Queensland (-0.8%), NSW (-0.6%) and SA/NT (-0.3%).

Overall sentiment about the residential property market improved over the quarter, with NAB’s Residential Property Index rising four points in the third quarter of 2012 following a fall of eight points in the previous quarter.

WA was the strongest state, registering a 41-point gain, over the quarter followed by Queensland (15 points up) and NSW (5 points) but sentiment remains negative in SA/NT (-7) and Victoria (-18).

These expectations are based on a survey of 250 respondents comprising of real estate agents/managers, property developers, owners/investors, asset/fund managers and valuers.

The report found that lower interest rates and rental growth are boosting local investor demand in the existing property market.

“Overall demand for existing property is strongest in the inner city and capital growth prospects best in the sub-$500,000 range.

“Buying activity is much more cautious in the prestige market, with capital growth expectations for that sector considered to be ‘poor’ in both the housing and apartment markets in all state markets,” says NAB.

The leasing market continued to grow in the September quarter, with low rental vacancies driving a 0.2% increase in national rents but below the 0.4% gain in the previous quarter.

The report notes "significant divergence among state rental markets" with rental market softest in Victoria, where rents fell 0.5% “as Melbourne continues to have the highest vacancy rates among the capital cities”

Rents also fell 0.4% in SA/NT, but increased in NSW (0.2%), Queensland (0.6%) and WA (1.1%), “where the continued influx of transient workers is keeping vacancies low”.

The expectation of 2.1% rental growth over the next 12 months is broadly unchanged from the 2.2% previous expectation, however the outlook is much weaker in WA, where rents are now tipped to grow by just 2.6%, compared with 5% previously over the next year and 3.6% over the next two years, down from 6.7% in the second quarter of 2012.

“It seems the negative impact of falling commodity prices and scrutiny surrounding the mining investment pipeline may have also impacted housing market sentiment in that state.

“In contrast, Victorian respondents are much more optimistic, with rents forecast to grow by 1.1% (-0.2% previously). The outlook for the other states is largely unchanged.

The survey also revealed that overseas buyers have emerged as “important players in the market for new developments”.

“Demand for new property is strongest for inner city low rise apartments and townhouses and inner city houses but only assessed as ‘fair’,” says NAB.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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