Asking rents have stalled in capital cities after a spike in investment property purchases pushed up supply in the rental market.
In cities where home and apartment prices have risen, the slowdown in rental growth has led to yield depression in the past year.
Rental growth for houses was flat in most cities in the September quarter and fell in some areas for units, research from Domain Group showed.
Property lending for investors has been at a record high, with broker firm AFG saying investors made up almost half the new loans processed in NSW last month and more than 30 per cent in the other states.
Foreign investment has also boosted the number of homes available to rent.
The rental market has become more affordable for tenants in Canberra and Perth as landlord returns fall.
Asking rents were down six per cent in Perth to $395 for units and $450 for houses.
In Canberra, rents have fallen to $380 a week for units and $450 for homes.
Yields for homes have dropped more than six per cent in both cities compared with the 2013 September quarter.
Unit yields have also dropped more than six per cent year-on-year to 4.52 per cent.
In Melbourne, where apartment supply has continued to grow, yields remained steady at 4.55 per cent for units and fell 3.6 per cent for houses to 4.12 per cent.
Melbourne’s median asking rent for a home is $380 a week and $370 a week for units.
Despite a slowdown in Darwin property, the rental market is still tight and the median asking rent for a home is $660 a week – the highest in the country, followed by Sydney at $510.
Sydney has been the country’s strongest-performing residential property market for the past year.
Investment lending and construction has surged but rents have held steady as demand is still strong.
Yields, however, have compressed because of the consistent rise in property values.
In the past year, year-on-year yields for Sydney houses fell 6.9 per cent to 4.1 per cent but were steady in the past quarter.
“Although we’ve seen a pause in rental growth over the September quarter, demand will continue to put upward pressure on rents in Sydney,” Domain Group senior economist Dr Andrew Wilson said.