Rental conditions improving but yields remain low

While the pace of capital gains has slowed across most regions, the latest CoreLogic data suggests some momentum is gathering across rental markets, however, rental growth has not been high enough to reverse the downwards trend in yields.

The national annual pace of rental growth has lifted from 0.9% a year ago to 2.8% over the most recent twelve month period.

Considering national dwelling values were 6.6% higher over the past twelve months and rents rose by 2.8%, yields have compressed further over the past year and generally remain at or close to record lows in most cities.

The two exceptions are Sydney and Darwin, where yields have shown a subtle improvement over recent months, due to dwelling values underperforming relative to weekly rents. Mr Lawless said, “If the Sydney market continues to see values slip lower while rents gradually rise, yields will repair, however a recovery in rental returns is likely to be a slow process.”

Gross rental yields across Melbourne remain the lowest of any capital city, with the typical dwelling attracting a gross yield of 2.89% (record low) which is 20 basis point lower than a year ago. To provide some context about why rental yields have compressed so much, over the growth cycle to date, Melbourne dwelling values are up 58% while weekly rents have only increased by 15.5% over the same time frame.