Sydney rental yields continue to fall

“Good news for renters in Sydney with rents falling over the year. House and unit median rents are back to 2016 and 2015 prices, respectively,” the report noted. 

Median house rents are now $25 below the peak reached in 2017-18 and unit rents are $40 below its peak in 2017-18. 

House rents are back where they were in 2016 and unit rents back to 2015 prices. 

“House rents fell most in the inner city, eastern and southern regions over the past year. Rents for houses rose by 1 per cent on the northern beaches. Unit rents fell by 5-7 per cent in the west, inner-west and southern suburbs,” Domain’s report found.

Simon Pressley, Propertyology’s head of research, believes the low rental yields in Sydney makes it difficult for investors to be positively geared. 

“The numbers will obviously vary from one part of the city to the next. However, Sydney’s median rental yields (3.1 per cent for houses and 3.9 per cent for apartments) mean that even with these record-low interest rates, an investment property purchased with a 10 per cent cash deposit has an annual cash shortfall of $9,700 and $5,500, respectively,” Mr Pressley explained. 

Benefiting from new apartment construction and slower population growth, Sydney property market had a vacancy rate of 3.7 per cent in December, up from 3.5 per cent a year ago. 

Mr Pressley said the current high vacancy rates in Sydney make it difficult for investors to gain higher yields in 2020.

“It’s also worth noting that Sydney vacancy rates are currently at an all-time record high for the harbour city. SQM Research recently recorded 27,000 empty dwellings. This lack of pressure is one of a few metrics where Sydney is behind the eight-ball at this stage in the cycle,” Mr  Pressley explained.

However, the good times for investors could soon be over, with rents being predicted to rise over the next couple of years, according to Domain.

With the ABS releasing its monthly data, which showed household building construction loans sliding back by 8.4 per cent, while high-density new builds have slid by 21.9 per cent.

Domain believes fewer new apartments are being expected in the harbour city over the next few years, meaning a likely increase in rental yields in 2020.