Rental yields fall in fast-growing areas

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The rapid increase in house prices in some parts of Australia has resulted in dramatic drop in rental yields in those areas according to a recent report by rpdata.com.

One of the biggest surprise falls in rents occurred in the resource-rich mining town of Collinsville in North Queensland where housing yields fell by 2.4% from a yield of 9.1% a year ago to 6.7%. During the same period, median house price surged by 8.7% in the area.

Newcastle's Garden Suburb recorded the second biggest drop in rental yields, losing 2.3% to 4.5%, however, median house prices jumped by a massive 31.1% over the same period.

Another fast-growing town, Seaholme in Victoria saw yields fall by 1.4% to 2.2% after median house price rose to a phenomenal 64.5%.

In the unit market, Cromer in NSW racked up the biggest loss in rental yield, with a drop of 2.5% to 4.6% during the past 12 months.

"For most areas, rental yields eased over the past 12 months due to increases in property values and an extremely active first homebuyer market which has eased some of the pressure on the rental market," said Cameron Kusher, research analyst with rpdata.com.

"With property prices higher and rents on par or even lower than what they were a year ago, the return from the property investment is generally not as strong as it was 12 months ago. The fall in rents and erosion in yields have been significantly more noticeable as property value growth ramped up."

However, Kusher noted that with the rate of value growth slowing and interest rates higher, it will likely be more difficulty for first homebuyers to enter the market. "As a result, the rental market is expected to tighten creating upwards pressure on rental rats and in turn improving gross yields," he said.

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