The CoreLogic June Home Value Index shows that while capital city dwelling values have fallen by 1.6% over the financial year, rents have risen 1.4%.
Although rental growth is generally mild, with rents rising and dwelling values falling, gross rental yields are consistently trending higher; albeit from record lows in some cities.
The lowest yields have consistently been in Sydney and Melbourne, where high capital gains relative to sluggish rises in rents had previously compressed rental yields to all-time lows. Melbourne yields bottomed out at 2.88% in November last year and have since risen to 3.0%; the highest reading since April 2017. Similarly, in Sydney, gross dwelling yields bottomed out at 3.04% in August last year and have since trended higher to reach 3.21%.
Despite the improvement, gross yields remain historically low, implying that most investors would be offsetting their cash flow losses against their taxable income. With the prospects for capital gains being muted, at least over the short to medium term, this negative gearing strategy is likely to be less appealing to many investors.
Regional market trends
Property values happily continued their upward trajectory across regional areas, recording a 0.6% rise over the quarter - the exceptions being regional Queensland and Western Australia, where values crept back 0.2% and 0.1% respectively in June.
Regional Victorian markets have shown the highest rates of capital gain in the June quarter (+1.8%), and regional Tasmania remains closely behind with 1.7% growth. No wonder First National’s Tasmanian offices report strong levels of enquiry.
Demand for country property continues unabated, the result of demand rippling out from congested metro areas. NSW currently records 5 of the country’s top 10 performing regional markets and Victoria’s Geelong tops the list (+11%) as the only country market to record double-digit growth over the financial year. Ballarat too has benefited, as has Sydney’s Central Coast, where values are up 1.6% over the past 12 months.
Investors re-evaluate strategy
Given the higher yields and more affordable entry prices on offer in numerous regional locations, many investors are building their property portfolios in affordable and strategic ways, looking to the top 10 regional locations in NSW, QLD and Victoria.