Rents continue on a downwards spiral

Rents across the nation fell 0.2% during the 12 months to April, sending yields to record lows, according to CoreLogic's monthly rental review.

Rents rose 0.1% for the month of April, but the rise was not enough to counter falls throughout the year.

The result is in line with recent inflation data, which showed prices in general were weaker in the March quarter, sparking fears we could be entering a period of declining prices.

Five of the country's eight capital cities saw rents rise over the last 12 months, but Perth and Darwin experienced large declines in rent, sending the overall indicator lower.

The results were as follows:

- Sydney +1.4%

- Melbourne +1.7%

- Adelaide +0.5%

- Hobart +1.1%

- Canberra +2.5%

- Brisbane -0.6%

- Perth -8.9%

- Darwin -12.6%.

The national rent was $490/week for houses, and $467/week for units across all capital cities.

Research analyst Cameron Kusher said he expects rent growth will remain subdued.

“We anticipate that the weakness in the rental market will persist over the year and rents will continue to fall over the coming months. The annual change in rental rates continues to be at its slowest pace since before 1996,” he said.

“At the same time last year, rental rates increased by 1.7% which indicates a sharp slowdown in rental growth over the past year.”

Slower wage growth, excess supply and slower population growth were all keeping rents down, said Kusher.

“Factors contributing to a slowing in rental growth include falling real wages, excess rental supply in certain areas and lower rates of population growth - all of which have impacted on demand for rental accommodation,” said Kusher.

“With dwelling approvals at recent record highs and construction activity set to peak over the next 24 months, accompanied by many new properties still to settle, we anticipate that the weak rental market conditions will persist with rental growth continuing to slow and, or, fall in most capital cities,” he said.

“Based on current market conditions, landlords won’t be in a position to lift rental rates and may actually need to reduce rents in order to keep their tenants. We see renters as holding a stronger negotiation position and where they now have the potential to upgrade into higher grades of accommodation for a similar, or lower rents,” Kusher said.

The data shows that Canberra is the only capital city where rental growth is stronger now than it was a year ago.

With rental rates increasing in some cities in April, rates in Sydney, Adelaide and Hobart are at record highs. In Melbourne, Brisbane, Perth, Darwin and Canberra, rents are down from record highs.

The results show that as home values outpace rents, gross rental yields are trending lower, hitting record lows of 3.3% for houses and 4.2% for units.

Kusher said, “In our two largest capital cities, we’ve seen rental yields move to record lows of 3.1% for houses and 4.0% for units in Sydney and in Melbourne, rental yields are at a record low 2.9% for houses and 4.0% for units.”

“With home values continuing to grow and rental markets expected to soften further, don’t be surprised if we see a further compression of gross rental yields over the coming months,” he said.

Source: CoreLogic