While lending to Australian property investors hit another record high in June, capital city rental values are not growing nearly as fast.
According to data released by CoreLogic RP Data, capital city rents rose by just 0.9% in the year to July, the slowest annual increase since December 1995.
In comparison, consumer price inflation rose by 1.5% over the same period.
Rents for units increased by 1.6%, overshadowing a benign 0.7% rise for houses.
Reflective of the divergent economic performance across the states and territories, the largest rental increases were recorded in Sydney, Melbourne and Hobart. At the other end of the spectrum, those in Perth and Darwin slumped by 5.6% and 9.3% respectively.
The breakdown for each state and territory, including rental changes for houses and units, is found below.
In combination with strong residential price growth, particularly across the eastern capitals, gross rental yields are also falling.
According to CoreLogic RP Data, capital city rental yields for houses fell to a record-low 3.4% in the year to July. Units fared marginally better at 4.3%.
12 months earlier they were 3.8% and 4.6% respectively.
The slowdown in rental growth, in combination with higher residential property prices, is demonstrated by the yellow line in the chart below.
“With capital growth anticipated to continue to outpace rental growth we expect that rental returns could push even lower over the coming months. From an investment perspective it means that capital growth is going to be much more important for a return on investment”, Tim Lawless, head of research at CoreLogic RP Data said.
That’s a fairly telling statement.
Expectations for continued property price gains, rather than yields, were becoming increasingly influential on investment decisions.
That sounds like speculation, and explains exactly why APRA had to act to cool growth in lending to property investors.