Written by Stefan Kostarelis
Adelaide’s house and unit rental yields have outperformed Sydney, Melbourne and Perth for the June quarter, according to the latest data from CoreLogic.
House rental yields in Adelaide were at 4% for the June quarter, second only to Brisbane (4.1%). They were followed by Perth (3.6%), Sydney (2.8%) and Melbourne (2.6%).
Brisbane also came out on top for unit rental yields (5.2%), followed by Adelaide (4.8%), Melbourne (4.2%), Perth (4.1) and Sydney (3.7%).
While capital gains across the nation are cooling, rental growth has been rising.
Commenting on the increase, CoreLogic head of research Tim Lawless said, “While the rental growth turnaround will be welcomed by landlords looking to recover higher mortgage costs, the consequence is that renters are now facing renewed pressure as rents rise.”
Although rental yields have gone up the last year, dwelling values have risen even faster, particularly in Melbourne and in Sydney. As a result, gross rental yields are at a record low in Melbourne and a near-record low in Sydney.
“It’s likely that landlords will be seeking to recover some, or all, of their increased financing costs associated with higher interest rates on investment in interest only loans by progressively increasing weekly rents,” Lawless said. “With record-low wages growth and so much new housing supply coming to market, this remains to be seen.”
Although rental yields may be holding firm in Adelaide, the same cannot be said for dwelling value capital gains.
According to the CoreLogic Home Value Index, Adelaide dwelling values dipped to –1.7% in June, over three points below the average across combined capitals (1.8%).
Of the five cities mentioned, Melbourne had the strongest June (2.7%), followed by Sydney (2.2%), Perth (1.4%), and Brisbane (-0.5%).
Looking at the June quarter, combined dwelling values of the capitals were up 0.8%, which is the slowest quarterly rate of growth since December 2015.
Of the five, Adelaide had the weakest quarter (-0.2%). At the top was Melbourne (1.5%), followed by Sydney (0.8%), Brisbane (0.5%) and Perth (0.1%).
Year on year, only Perth dwellings have lost value (-1.7%), with Melbourne (13.7%) and Sydney (12.2%) the highest by a mile and Adelaide (2.4%) and Brisbane (2%) rounding out third and fourth.
The results suggest that Sydney’s slowdown is more pronounced than Melbourne’s, and this is supported by weaker auction clearance rates in the harbor city.
Lawless noted that Sydney auction rates have been hovering in the high 60% range, while in Melbourne rates have remained above 70%.
As most analysts now agree, these factors point to a housing market that is slowing rather than crashing. Hopefully, cautious investors will not be discouraged by Adelaide’s recent dip in dwelling values and look at the larger picture.
Adelaide remains a viable option for conservative investors and is already attracting an increase in interstate and international investment. We won’t know for sure until the September quarter numbers are released but rental yields are holding firm and dwelling values should bounce back.