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‘Yields are improving’: Opportunity for investors as rents flatline
As rental growth stalls, investors can still unlock opportunities for strong returns, with record-high rents and falling purchase prices allowing for improved gross yields.
New data showed that rental growth stagnated over the September quarter, with prices remaining steady across most capitals despite tight vacancy rates.
Domain’s latest quarterly rent report, September Rent Report, showed that combined capital city house rents held steady at $700 per week over the quarter, up 7.7 per cent from a year ago.
Meanwhile, capital city unit rents rose 1.5 per cent to a new record of $690 per week, recording an annual growth of 6.2 per cent.
According to Domain’s chief of research and economics, Dr Nicola Powell, an unusual “disconnect” was occurring between low vacancy rates and rental growth, signalling that affordability pressures were to blame.
“That alignment between a low vacancy rate driving strong or faster rates of rent growth isn't really happening at the moment,” she told SPI.
“I think that what that is really pointing to is an affordability ceiling being reached by tenants across many of our capital cities, helping to contain that pace of rental price growth.”
Houses
Darwin saw the largest quarterly and annual increase in house rents, rising 5.3 per cent over the quarter and 14.3 per cent over the year to $800 per week.
Powell said that the Northern Territory’s capital was seeing an “exceptional rental market” due to extremely tight vacancy rates.
“Vacancy’s only at 0.3 per cent. That ultimately really does tell us that demand is higher than what the current supply is,” she said.
On the other hand, Sydney and Canberra were the only two capital cities to record declines in house rents.
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Sydney saw house rents fall 0.6 per cent, or $5, over the quarter to $835, while in Canberra, house rental prices fell 1.4 per cent to $700, a decline of $10.
Powell said both cities saw their first quarterly falls in around two years, driven by constrained affordability and rising vacancies.
“Ultimately, when you look at that vacancy rate in Sydney, it's sitting at 1.2 per cent. That is the highest September vacancy rate that we've seen since 2021,” she said.
“So that has ultimately helped to alleviate some of the conditions in the rental market, and that is more evident in an expensive market like Sydney at $835 per week.”
Units
According to the data, the only cities that saw any changes in unit rent prices were Hobart and Darwin.
Hobart unit rents increased 1.0 per cent, by $5, over the quarter, to a record $525 per week, its strongest result in almost four years.
The city’s vacancy rate rose to 0.3 per cent in September, up from 0.2 per cent a year earlier, although it remained among the lowest in the country.
Darwin’s rents rose 0.4 per cent, by $2, across the quarter to $650 per week, marking five quarters of consecutive growth, its longest run since March 2022.
Darwin's vacancy rate was 0.3 per cent in September, down from the 0.4 per cent recorded a year earlier and the city’s lowest September vacancy rate on record.
Powell said that, given the market dynamics, there would continue to be plenty of opportunities for yield-focused investors.
She said that while rents had flatlined in most cases, they still remained at record highs, while purchase prices were falling rapidly across the nation.
“That dynamic improves gross rental yields,” she said.
“Investors want their rental property to work harder for them, not just rely upon resale and capital growth, so investors are to be focused on what that yield is. And at the moment, yields are improving.”
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