Evidence growing that rents and yield are on the improve

With property value growth flat over the September quarter and the market transitioning from a period of strong growth to relatively flat conditions, we have long expected that rental market activity would start to pick up.

Data included within the RP Data-Rismark Home Value Index shows that the anticipated improvements in the rental market are starting to come to fruition.

During the last quarter, capital city house rents nationally have increased by 3.3% and unit rents by 0.6%.  At the end of June 2010, the combined capital city gross rental yield for houses was recorded at 3.9% and 4.8% for units.  As at September 2010 there was a slight improvement recorded with house yields increasing to 4.0% and unit yields recorded at 4.9%.

RP Data’s weekly rental listing data is reflecting the fact that rental accommodation is becoming much shorter in supply.  This week’s data showed that over the last four weeks there had been a total of 77,646 properties advertised for rent nationally, the fewest number of advertised listings in 19 weeks.  Total rental advertisements peaked during mid July with 91,498 advertisements over the month.  Since the peak, rental advertisements have fallen by -15.1%.  This result highlights that the rental market is tightening with fewer properties being available for rent.

Although the improvement in rents and yields has been slight to date, the higher interest rate environment, significant reduction in first home buyers and falling building approvals are all likely to contribute to heightened rental demand.  With these factors in mind, we expect that whilst the growth in residential property values is likely to be flat for at least the next 12 months, rental rates are likely to increase.  The higher interest rate environment will make it even more difficult for first home buyers to enter into home ownership and will likely dampen building approvals and commencements.  As a result, the lack of significant new rental market supply will result in ongoing tightening of rental vacancy rates, increased demand and subsequently competition for rental stock and ultimately higher prices being paid for rental accommodation.  Written November 4th by RP Data Research

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