Rental data good news for investors

By Terry Ryder, 22nd January 2009

The latest data on rents and yields for residential property provides considerable cause for optimism for property investors.

Rents continued to rise steadily in most of Australia’s major cities in the December Quarter, with a consequent improvement in gross rental yields, according to the latest Quarterly APM Rental Series from Australian Property Monitors.

Sydney, Adelaide, Canberra, Perth, Darwin and Newcastle all had significant increases in median weekly rents for houses, led by a 5% rise in Canberra in the December Quarter.

House rents were unchanged in Melbourne, Brisbane, Hobart and the Gold Coast, according to APM – but these locations all had rents at least 5% higher than a year earlier.

Darwin was the leading performer in terms of annual rent rises, with a 25% increase in house rents compared to December 2007. Darwin is the most expensive city in Australia to rent, with the typical houses costing $500 per week and units fetching $420.

Sydney recorded a 17% annual rise in house rents, while Perth rose 12.5%. Annual rent increases between 5% and 7% were recorded in Melbourne, Brisbane, Adelaide, Canberra, Hobart, Newcastle, the Gold Coast and the Sunshine Coast.

In the unit market, Brisbane, Canberra, Perth, Darwin and Hobart all had substantial increases in median weekly rents. Melbourne unit rents rose slightly while levels were unchanged in Sydney, Adelaide, Newcastle and the Gold Coast. The Sunshine Coast was the only major market to record a fall in asking rents in the December Quarter, with median rents for units down 1.6%.

In annual terms, Darwin was again the national market leader with a 20% rise in median weekly rents for units. Brisbane rents rose 10% while Sydney and Melbourne both recorded increases in the 8-9% range. Perth, Hobart and Newcastle all have unit rents 6-7% higher than a year ago.

APM says Sydney tenants are still “doing it tough”, with demand for well-located property continuing to outstrip supply. The typical Sydney house rent is now $450, compared to $385 a year ago, while median unit rents have increased from $370 to $400 per week.

Hobart is the cheapest major city for renters, with houses typically fetching $290 per week (compared to $500 in Darwin and $420 on the Gold Coast) and units $240 (compared to $420 in Darwin, $400 in Canberra and $350 on the Gold Coast).

APM says growing rental yields, coupled with lower interest rates, provide “a glimmer of hope” for existing property investors. I believe there’s considerably more than “a glimmer of hope” in these figures. With official interest rates down 3 percentage points since August 2008 and rents up considerably over the past 12 months, the equation for investors is greatly improved.

APM says gross rental yields for houses improved 15% in Perth, 14% in Darwin and 10% in Sydney in 2008. There were smaller improvements in yields in Melbourne, Canberra, Hobart and Newcastle. Yields declined slightly in Brisbane, Adelaide and the Gold Coast, according to the APM figures.

There were also solid improvement in gross rental yields for units in Sydney, Brisbane, Perth, Darwin, Hobart and Newcastle.

Investors can now typically achieve better than 5% gross rental yields on Darwin houses, Hobart houses, Sydney units, Canberra units, Darwin units and Hobart units, according to APM.

Terry Ryder

Terry is the owner and creator of hotspotting.com.au, which provides information to property investors on how to identify emerging markets before they’re common knowledge.