Rental yields on the rise across capital cities: Domain data

The return investors can expect on properties across Australia’s major cities is on the rise, with pockets of Sydney and Melbourne seeing the biggest improvement as house price falls, data shows.

Rental yields increased in all capital cities bar Brisbane — where house yields dropped 0.2 per cent — over the past three months, data from the latest Domain Rental Report shows.

Apartments in Canberra, with a yield of 6.14 per cent, offered the best return over the March quarter. Hobart offered the best yield for houses at 5.13 per cent.

“For investors, Hobart is a double win – it not only has the highest yield, but it’s seen significant capital growth,” said Domain senior research analyst Nicola Powell.

With the city’s vacancy rate at 0.3 per cent — the lowest of all the capital cities — Dr Powell said demand from tenants meant rents were rising at a faster rate than house prices, making renting in Hobart more expensive than Melbourne.

Meanwhile the development boom in Canberra in recent years pushed unit prices down, Dr Powell said, but much of the stock had been aimed at owner-occupiers, resulting in a lack of available rentals which had in turn pushed rents up.

Over the year to March, Melbourne had the biggest improvement in house yields jumping 7.5 per cent to 3.3 per cent, fuelled by increases in the inner city and inner south where yields increased by 15 per cent.

It was followed by Perth and Sydney, where yields increased 6 per cent and 5.3 per cent. Perth also recorded the largest increase in unit yields to 8.5 per cent.

“When you look at the markets that have seen the most signifiant improvements … it’s the cities that have seen the strongest price declines,” Dr Powell said. “We’re seeing prices fall at a faster pace than rents.”

With yields still lowest in Sydney and Melbourne and sale prices falling, remaining investors were increasingly looking to spend up elsewhere, said Rich Harvey, chief executive of propertybuyer.com.au.

“You would only ever consider going to that low a yield if you knew there was going to be a strong capital gain,” Mr Harvey said. “We’re seeing a lot of investors [now] interested in regional areas or Brisbane and placing a lot of our investors in the Newcastle market.”

Although yields were an important factor, Mr Harvey warned investors should focus on the three things that drive property prices – potential population growth, infrastructure projects and employment opportunities.

“For investors, yield is often a reflection of risk,” Mr Harvey added. “The higher the yield can also suggest a higher risk of vacancy in that property.”

Mr Harvey noted he would not buy in Darwin for instance, despite it having the second-highest yields for both houses and apartments, because the population was too transient. He added in Brisbane he would stay away from inner-city units and wouldn’t be in a rush to buy in Perth, as “it’s not a market that’s going anywhere in a hurry”.

The Agency’s national director of property management Maria Carlino said investors looking to buy an apartment needed to be patient, choose the right property and then be competitive with their rental price, particularly in Sydney and Melbourne where tenants had plenty of choice.

“Yields would be higher on an older apartments, but it depends on where it’s positioned,” Ms Carlino said. “You’ll probably find newer apartments have more outgoings, higher strata … you might be able to get more in rent but the cost of it is more.”

She noted that in coastal markets, particularly Queensland, landlords were increasingly opting to rent out their home via short-term letting sites over summer because they could get the equivalent of a week’s rent in a couple of nights.