Rental yields across the capital cities of Australia mostly declined during 2007, as property value growth outpaced the growth in weekly rental rates, according to a new report.

RP Data's weekly Property Pulse report analysed the top-performing suburbs for house and unit rental yields within 10km of a capital city GPO, and found that throughout Australia's mainland capital cities, Darwin currently has the strongest gross rental yields for both houses (5.94%) and units (6.09%). Perth, however, has the softest yields for houses (3.7%) and units (4.19%).

"With capital growth now softening nationally, rental increases are once again outpacing house and unit price growth, leading to stronger rental yields across the market," said RP Data's national research director, Tim Lawless.
The strongest inner-city markets in terms of gross rental yields are within Sydney and Canberra, Lawless said, with both areas containing at least five suburbs with a gross rental yield of more than 6%.

This is because Sydney has exceptionally strong demand fuelled by a large rental market situated close to Australia's largest employment node, and Canberra enjoys strong demand for rental accommodation, largely due to the significant presence of the public service.

Sydney and Canberra have the highest and second highest median house values of any capital city in Australia, which acts as another driver for the rental market.

This means that "more potential buyers are pushed into the rental market due to price barriers, preventing them from purchasing within their desired locality", Lawless said.

The best inner-city rental yield in mainland Australia is currently found in Darlington, Sydney, where the average gross rental yield for a unit sits at 8.6%.