The decline in national rental values eased over the September quarter, down -0.2% from -0.5% over the June quarter.
The improvement in the rate of decline of the broad figures can be attributed to a rise in regional market rents. Regional dwelling rental rates rose by 1.2% over the third quarter of 2020, after a lower 0.2% rise over the June quarter. Meanwhile, capital city rental markets recorded a 0.7% reduction in rents, which was steady with the rate of decline recorded over the June quarter.
Looking at the change in rental rates across the capital cities, four of the eight cities recorded a rise in rental values over the September quarter, after the June quarter saw the market react to the imposed COVID-19 restrictions by recording relatively weak or declining rental growth across all cities.
Melbourne, Sydney and Hobart saw the largest declines in rents over the September quarter. An increase in supply across these regions over recent months continues to weigh on asking rents as power shifted to tenants. These regions continue to be the most impacted in terms of demand, representing relatively high concentrations of industries with the greatest COVID-induced job losses in the labour force, a halt in overseas migration and tourism.
Tim Lawless, Head of Research comments on the latest quarterly results. “We are seeing a growing divergence between rental rates for houses and for units, especially across Melbourne and Sydney where unit rents were down 3.6% and 3.0% respectively over the September quarter. The weakest rental conditions are emanating from the inner city precincts where both a supply and demand shock are having a negative impact on rental rates. These precincts have recorded a surge in new unit supply over recent years, while more recently demand has fallen sharply due to stalled migration and weaker labour market conditions across industries where workers are more likely to rent.
“Rental markets across Perth and Darwin have clearly turned a corner; after consistently recording the weakest rental conditions post mining boom. Rising rental rates are a symptom of tight supply due to low levels of investment and residential construction activity over recent years, while demand looks to be improving.
“Although rental yields are down slightly on last year’s levels, mortgage rates have reduced by a larger amount. Investor loans are generally attracting a mortgage rate around 2.9% compared with a gross yield across most capital cities that is above 4% for houses and 5% for units, implying fewer investors would be relying on a negative gearing strategy.”
Key highlights – September Quarter
- National rental rates rose by 0.1% over the month of September, taking the typical asking rents across the nation to $443p/w.
- Decline in national rental rates eased over the September quarter, down 0.2% from a half a percent decline over the second quarter of 2020.
- Strength in regional rents offset decline in capital city rents. Capital city rents are 0.7% lower over the quarter and -0.1% lower year-on-year while regional market rents are 1.2% higher over the quarter to be 3.0% higher over the past 12 months.
- Unit market drives national decline in rents, with unit rental rates down -1.9% over the third quarter against 0.5% rise in house rents.
- Four of the eight capital city markets recorded a rise in rental values over the third quarter, with the largest rise in quarterly rents recorded across Darwin (2.5%) and Perth (2.2%).
- Melbourne and Sydney units record the largest quarterly decline in rental values at -3.6% and -3.0% respectively.
- Gross rental yields are currently 3.77% nationally compared to 3.73% at the end of the June quarter, and 3.99% a year ago.
- Rental yields were higher over the quarter in Sydney, Melbourne, Brisbane, Perth and Darwin, but declined in the rest of the capital city markets.