Low rental yields could add to housing risk

Adam Smith 12 April 2016

Low rental yields could add to housing risk

Low rental yields could pose a risk for property investors, new research has claimed.

Moody's research has claimed falling rental yields and the increased cost of servicing the loan on housing investment relative to household incomes could put property investors at risk, The Australian Financial Review has reported. A Moody's Investor Services residential report has claimed that the gap between investors' interest costs and rental earnings is "bigger than it has ever been", the AFR said.

"The deteriorating affordability of servicing investment properties makes residential property investors more vulnerable to risks such as loss of income, interest-rate increases, vacancies or rent reductions, and therefore increases their probability of default," Moody's assistant vice president John Paul Truijens said.

Truijens said even with record low interest rates, the size of the home loans investors need to buy is high.

"This is relevant to those who have bought at high prices. They are the most vulnerable here," he said.

Those who bought at the peak of the Sydney and Melbourne property booms are particularly at risk, Truijens said. And shrinking rental yields mean investors will come to depend more on capital growth to cover their losses. Moody's claimed this dependence on house price growth made residential property investment riskier, and that the situation for investors could deteriorate through 2016 and 2017.

"If there are any shocks, if house prices don't go up, then all investors have are cash-flow losses," Truijens said.

The Moody's analysis comes after figures from CoreLogic RP Data showed anaemic rental price growth across Australian capitals.

Source: CoreLogic RP Data

When should you buy?

With confusing signals on all sides, would-be property investors or owner-occupiers may be confused about the best time to buy. Weigh up your own circumstances by reading our guide on the best time to buy property. Read the guide

Image: Shutterstock

Ask a Question

You are about to post a question on finder.com.au

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At finder.com.au we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the finder.com.au privacy policy, receive follow up emails related to finder.com.au and to create a user account where further replies to your questions will be sent.

Ask a question