Rental yields were down over the month, with capital gains continuing to outpace rental growth, according to RP Data.
The RP Data-Rismark July Hedonic Home Value Index Results showed the typical gross rental yield on a capital city dwelling fell to 3.9 per cent in July, from four per cent in June.
Melbourne yields were the lowest of any capital city at 3.4 per cent gross, followed by Sydney at 3.9 per cent.
RP Data research director Tim Lawless said despite the low yielding environment, the total returns on housing have been strong thanks to the level of capital gains.
The RP Data Rismark Accumulation Index, which combines the level of capital gain with the gross rental returns, is showing a 14.7 per cent total return over the past 12 months, led by Sydney at 19.5 per cent and Melbourne at 14.9 per cent.
The lowest total returns have been recorded in Hobart and Canberra where the combination of capital gains and rental yield provided a 6.5 per cent gross return across both cities.
According to Mr Lawless, the housing market is set to record further capital gains. However, he said that it is likely that growth rates will continue to taper in trend terms back to a more sustainable level.
“With interest rates remaining low and fixed rates seeing a further downwards pressure, we are expecting that capital gains will continue into the foreseeable future,” he said.
“What is likely though is that the rate of capital gain will continue to reduce, particularly in those cities where affordability constraints are the most significant and rental yields are the lowest.
“Low yielding market conditions in Sydney and Melbourne are likely to act as a disincentive to investors, as well as the fact the markets are well advanced in their growth cycle,” he added.