The current downturn in dwelling prices is currently working in favour of property investors as gross rental yields rise across capital cities and regional markets.
CoreLogic’s latest Hedonic Home Value Index showed a 0.9% monthly, 2.8% quarterly, and 9.8% annual growth in rents in July.
Brisbane led the rise in rents with a 4.2% gain over the quarter.
CoreLogic research director Tim Lawless said rental markets are extremely tight, with vacancy rates lingering around 1% or lower across many markets.
“The number of rental listings available nationally has dropped by a third compared to the five-year average, with no signs of a lift in rental supply,” he said.
“On top of already tight rental supply, it’s likely demand will continue to increase as overseas arrival numbers climb.”
With rental growth outpacing the price gains, gross rental yields are on the rise across most markets.
It is important to note, however, that rents are consistently improving from record lows.
For instance, the gross yield has increased from a record low of 2.96% in February 2022 to 3.20% in July.
Still, the fastest yield recoveries have occurred across the Sydney and Melbourne unit markets, where gross yields have increased by 45 and 40 basis points, respectively.
“Such tight rental markets, improving yields and stronger buying conditions should help to keep a floor under investment demand,” Mr Lawless said.
|
State |
Region |
Gross Rental Yields (%) |
||
|
Dwelling |
House |
Unit |
||
|
NSW |
Sydney |
2.8 |
2.5 |
3.5 |
|
Regional NSW |
3.7 |
3.6 |
4.2 |
|
|
Vic |
Melbourne |
3.0 |
2.6 |
3.8 |
|
Regional Vic |
3.6 |
3.5 |
4.3 |
|
|
QLD |
Brisbane |
3.6 |
3.4 |
4.7 |
|
Regional QLD |
4.5 |
4.4 |
4.8 |
|
|
SA |
Adelaide |
3.7 |
3.5 |
5.0 |
|
Regional SA |
5.1 |
5.0 |
6.4 |
|
|
WA |
Perth |
4.4 |
4.3 |
5.6 |
|
Regional WA |
6.3 |
6.2 |
8.2 |
|
|
Tas |
Hobart |
3.8 |
3.7 |
4.2 |
|
Regional Tas |
4.1 |
4.0 |
4.7 |
|
|
NT |
Darwin |
6.1 |
5.6 |
6.8 |
|
Regional NT |
6.6 |
n.a. |
n.a. |
|
|
ACT |
Canberra |
3.8 |
3.5 |
4.9 |
|
National |
3.4 |
3.2 |
4.0 |
|
Property prices to decline by 20%
CoreLogic figures show a 1.3% drop in median dwelling prices across Australia in July, marking the third consecutive month of decline.
AMP’s head of investment strategy and chief economist Shane Oliver said a host of factors will likely result in property prices falling over the next 12 to 18 months, including poor affordability, rising rates, high inflation, and higher supply in some big markets like Sydney and Melbourne.
“A surge in listings associated with the spring-selling season at a time of weakening demand will likely see price falls accelerate over the next few months and a surge in fixed rate loan expiries particularly through the second half of next year risks driving a sharp rise in distressed selling, which will further add to listings and downwards pressure on prices,” he said.
With the assumption of the cash rate topping out around 2.6% next year, Mr Oliver said prices could potentially fall by 15% to 20%.
Furthermore, the fall in home prices this cycle could see some cities like Sydney and Melbourne reverse all or much of the boom in prices since their 2020 pandemic low — this could possibly result in a rise in negative equity for recent low deposit buyers.
“The national property downswing looks like just another cyclical downswing, albeit it’s a bit more rapid — but note that the 25-year bull market in capital city property prices is likely to come under some pressure in the years ahead as the 30-year declining trend in inflation and hence mortgage rates which has enabled new buyers to progressively borrow more and more, and hence pay more and more for property is now likely over,” Mr Lawless said.
—
Photo by @kanchanachitkhamma on Canva.
