Rental yields in most capital cities have started a downward trend as property values grow, according to RP Data analyst Cameron Kusher.
Kusher warned that this may impact investors down the line, when capital growth slows and mortgage rates eventually start increasing again.
“While there are benefits associated with negative gearing, investors may like to look at the longer term costs and benefits associated with housing market investment rather than just speculating on short-term capital gains,” he said.
He added that investors who focus too much on capital growth may be limiting their prospects.
“Although home value growth may be strong at a time when mortgage rates are incredibly low, once rates eventually increase, value growth can quickly slow.
“A feature rarely seen across the residential housing market is simultaneous growth in values and growth in rental rates. Given that yields are based on rental rates and home values, if values rise quicker than rents you will see an erosion of rental returns.”
The September RP Data-Rismark Home Value Index covering capital city house values showed an increase of 5.7% over the past year, while unit values increased 4.4%. At the same time, rental rates increased by just 3.1% for capital city houses and 2.6% for capital city units.
