Australian rents struggle to keep up with capital gains

Rental rates in Australia are struggling to keep up with capital gains growth, according to RP Data.

The report for the third quarter of 2014 showed that the annual rental rate for houses and units increased by 1.3 per cent, while in the capital cities, house rents remained flat at 0 per cent growth; rental rates for units increased by 2.4 per cent.

While rents are rising, though, they are being outstripped by the rate of capital gains growth, which is pushing yields lower. In Sydney and Melbourne, in particular, where values have risen significantly higher than other cities, rents "aren't doing much at all", says RP.

Darwin currently holds the highest weekly median rental rate for houses at $660 followed by Sydney $525. For units, Darwin once again emerges as the most expensive market, recording a weekly median rental rate of $550 followed by Sydney $500.

RP Data’s Tim Lawless comments: “The performance of rental markets are diverse, however the common theme is that generally the rate of capital gain is outpacing the Change in weekly rents which is driving rental yields lower. This is happening at a time when investment demand is at record levels and trending higher, which highlights that most investors are focussing on capital gains and ignoring the low yield scenario. The softer rental conditions are likely the result of the surge in investor related activity which is seeing more rental supply hit the market."