Property investors speculating on capital gains need to be extra cautious when dealing with the southeastern capitals, as rental yields have hit record lows in both Sydney and Melbourne. Low rental yields make property investment less affordable and leave investors vulnerable to increases in interest rates.
Data from CoreLogic show that gross yield (i.e. yield before costs) on both houses and units reached record lows in January across Sydney and Melbourne. The gross yield was 2.8% for Sydney houses and 2.7% for Melbourne houses.
Meanwhile, Sydney units recorded a gross yield of 3.8% and Melbourne units recorded a gross yield of 4%.
“While rental yields plumb new lows, investment in the housing market has been consistently ratcheting higher, which implies that investors are speculating on further capital gains in the housing market,” said Tim Lawless, CoreLogic’s head of research.
The continuing upward trajectory of property prices in Sydney and Melbourne has surprised many analysts. Early last year, most analysts were expecting property price growth in the southeastern capitals to moderate.
However, two cuts to the official interest rates by the RBA in the middle of 2016, high levels of investor demand, and an overall lack of supply in the southeastern capitals have overturned expectations.
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