Home values aren’t the only things running hot in Australia’s booming property market. Recent data from Domain shows weekly rents surged across the nation over the December 2021 quarter, with records falling left, right and centre.
Take Brisbane, which broke three big rental records over the quarter:
Canberra wasn’t far behind. The national capital retained its title as Australia’s most expensive house rental market after rents jumped 4.7% over the quarter to an all-time high of $675/week.
In fact, all the capital cities – except for Darwin – saw rents increase over the quarter:
The good news for landlords doesn’t stop there. Cast your eyes to the year-on-year column and you’ll see the combined capitals saw house rents grow by an annual rate of 7.4% – the largest annual increase since 2009.
So what’s causing the rental price hikes?
The rental market is a great example of how supply and demand affect prices.
When supply falls and demand increases, upward pressure is placed on rents; conversely, when supply increases and demand falls, downwards pressure is placed on rents.
Vacancy rates tell you about the balance between supply and demand in a market. That’s because the rate shows the percentage of rental properties not occupied by tenants. So, for example, if a market has a vacancy rate of 4%, that means 4% of available rental housing is empty.
A vacancy rate below 2% is widely considered to be a ‘landlord’s market’. As Domain data for January shows, every capital city except Melbourne is now a landlord’s market.
The situation is unlikely to get better any time soon for tenants. International students and immigrants will return soon, likely increasing demand in a fiercely competitive market.
But property prices are growing at a faster rate than rents, according to CoreLogic’s January home value index. As a result, rental yields in many of our capital cities are under pressure – with the national gross rental yield falling to 3.21% in January, down from 3.69% a year ago.
The gross rental yield measures how much rent an investment property makes each year, as a percentage of the property’s value. It’s calculated by:
If we imagine you get $30,000 each year in rent, and your property is worth $600,000 – your gross rental yield would be 5% ($30,000 / $600,000 x 100).
Net rental yield goes one step further, by taking the property’s expenses into account (excluding home loan interest repayments). As a result, it more accurately reflects the money you’ll end up with after costs.
To work out net rental yield:
Using the above example, if your annual expenses were $10,000, your net rental yield would be 3% (($30,000 – $10,000) / $600,000 x 100).
For investors, a higher yield means stronger cash flow. That said, while yields are important, they shouldn’t be your sole consideration when evaluating a potential investment property. You should also look at a property’s potential for capital growth.
Wondering how to make property investment work for you? Shore Financial can talk you through the process. To discuss your options, call us on 1300 416 700, email us on info@shorefinancial.come.au or fill in this online form.
To discuss your options, you can call us on 1300 416 700, email us on info@shorefinancial.come.au or fill in this online form.
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