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While housing market sentiment lifted slightly in the first quarter of 2014, the rental market remained unchanged, eroding the yields of many investors.
According to the latest NAB quarterly residential property survey, across the country rents grew by just half a per cent in the first three months of the year.
However, as sentiment improved in SA/NT and NSW, the outlook for house prices strengthened in all states except Victoria, where rental yields for investors have been diminished.
Rental growth was fastest in NSW (1.4 per cent) and weakest in WA (down 1.2 per cent), where the leasing market is clearly feeling the pinch from the slowdown in mining investment.
Softer income returns are tipped for most states over the next 1-2 years, with NSW and Queensland expected to provide the best returns.
The report noted that a pick-up in foreign buying activity in the market for new property in Queensland and for established housing in NSW was driven mainly from investors. In terms of total demand, foreign buyers now account for just over one in seven new properties and around 10 per cent of established homes.
Capital growth expectations improved at the premium end of housing market, led by NSW and Victoria, but overall prospects are strongest for houses and apartments worth less than $500,000.
Employment security is still identified as the biggest impediment to buying existing property in all states except NSW, where a lack of stock is seen as the biggest impediment in the marketplace.
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