Canberra rents rise but yields still play catch-up

Canberra has recorded the biggest jump in median weekly rent among Australia’s capital cities in the second half of 2015 but the surge in prices hasn’t translated to high rental yields, according to a new report. 

The Domain Rental Report for the December 2015 quarter was released on Thursday and revealed a 4.4 per cent rise in the cost of renting a house since September – and compared with the same period a year earlier – from $450 to $470 a week.

Median weekly unit rent increased by 2.6 per cent from the September quarter to the December quarter, from $380 to $390 a week – one of only two capital cities to experience growth.

But the figure is unchanged compared with the same period a year earlier.

While the rising prices are a good sign for investors, the strong results haven’t fully translated to surging rental yields yet.

Canberra’s gross rental yields for houses dived by 3.3 per cent quarter on quarter, the second biggest drop among the capital cities behind Darwin (4.62 per cent).

The drop was slightly less year on year, with returns falling 3.1 per cent between December 2014 and 2015.

While gross unit yields fell by just 0.1 per cent quarter on quarter, rental returns have increased by 1.5 per cent in the past 12 months.

Domain senior economist Dr Andrew Wilson said the cost of renting a property in the ACT had risen faster than rental return on investment, particularly for detached houses, alongside a low vacancy rate of 1.6 per cent.

“Canberra remains a very tight market in terms of vacancy rates. There’s no relief with more stock coming on,” he said.

“Rising [rent] prices, I think, have counterbalance rising interest rates.”

Dr Wilson said the vacancy rate for Canberra’s units wasn’t as tight but had fallen slightly over December.

“It reflects a lot of new developments happening in Canberra,” he said.

“Surprisingly, we’re not seeing any relief in rents given vacancy rates. Unit rents were up 2.6 per cent over the quarter but over the year were still flat. I think that’s reflective of supply.”

Dr Wilson described Canberra’s property market as “in catch-up mode”, on the back of public service cuts and economic impacts.

He said it would be interesting to see how the upcoming federal budget affected what has been a “surging revival in the local market”.

“There was one stage there, in 2011, Canberra’s median price was on track to match Sydney. Issues like the local economy certainly flattened Canberra’s housing market,” he said.

“Canberra is among the strongest of markets at the moment. You have to take into context that real prices in Canberra fell in the last few years.”