Rental yields fall as housing values soar

Rental yields fall as housing values soar

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Rental yields have begun to fall as housing values rise faster than rental rates, according to research by RP Data.

Cameron Kusher, research analyst at RP Data, said the current housing environment presents two major issues for those investing in property.

“Firstly, capital gains as opposed to rental return is not realised until the point of sale.

“Secondly, although home value growth may be strong at a time when mortgage rates are incredibly low, once rates eventually increase, value growth can quickly slow. A feature rarely seen across the residential housing market is simultaneous growth in values and growth in rental rates," he explained.

The September RP Data-Rismark Home Value Index covering capital city house values shows an increase by 5.7 per cent over the past year, while unit values increased by 4.4 per cent. At the same time, rental rates increased by just 3.1 per cent for capital city houses and 2.6 per cent for capital city units.

“Given that yields are based on rental rates and home values, if values rise quicker than rents, you will see an erosion of rental returns,” Mr Kusher said.

Mr Kusher said this is important information for investors to consider when deciding to purchase property.

“While there are benefits associated with negative gearing, investors may like to look at the longer-term costs and benefits associated with housing market investment, rather than just speculating on short-term capital gains,” he said.

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