Home values up, but rental yields at record lows

Posted: 2 May 2016 10:41 am

house graph vectorHome values are up around the country as rental yields have fallen to record lows.

The CoreLogic RP Data April Home Value Index has shown a recovery for house price growth following a flat result in March. Median dwelling values across Australia’s capital cities are up 7.3% year-on-year. Perth and Darwin were the only capital cities to see dwelling values fall year-on-year.

CoreLogic RP Data research director Tim Lawless said house price growth was continuing, but at a moderating pace.

“While we’ve seen capital gains moderate substantially after peaking last year in Sydney and Melbourne, dwelling values
continue to trend higher, just not as fast. The annual rate of growth in Sydney peaked at 18.4% in July last year and has since moderated back to slightly less than half the peak rate of growth, at 8.9% over the most recent twelve month period,” Lawless said.

Rental markets have not fared as well, though, with capital city rents down 0.2% compared to last year. With dwelling values rising, this has pushed rental yields lower, CoreLogic RP Data said. The gross rental yield across Australia’s capitals hit a new record low of 3.4% over April.

“The low yield profile across Australia’s two largest cities, which are also the cities that attract the largest investment demand, suggests that most recent investors, despite the low mortgage rate settings, are likely to be utilising a negative gearing strategy to offset their cash flow losses against their taxable income,” Lawless said.

Despite the low returns, Lawless said investors were likely to remain active in the market.

“With the likelihood of interest rate increases in the foreseeable future almost non-existent due to the negative March quarter inflation reading, buyer demand is likely to remain high for housing. Similarly, as long as taxation policy continues to support investment in the housing market, we are likely to see investors remain as a substantial component of housing demand due to the lacklustre returns evident in other asset classes such as cash, bonds and equities,” Lawless said.

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