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RENTS AND YIELDS UP IN MOST MAJOR CITIES

By Terry Ryder

Big rent rises in all of Australia's major city markets have lifted gross returns on investment properties over the past year.

Australian Property Monitors' September quarter Rental Report indicates that Sydney, Melbourne, Brisbane, Canberra, Perth and the Sunshine Coast all recorded rent rises of 10% or better over the year to September 2007.

Rents rose even more in the unit market, with asking rents up more than 20% in Perth, Hobart and the Sunshine Coast, while Sydney, Melbourne, Adelaide and Canberra all recorded increases of 12% or better.

The median rent for houses in Sydney, Canberra, Darwin and the Gold Coast is now $400 or more per week.

The Rental Report - which covers the eight state and territory capital cities, as well as Newcastle, the Gold Coast and the Sunshine Coast - shows that investment yields are rising slowly but steadily on the back on the rent increases.

"Weekly asking rents in all capital cities are at record highs," says Australian Property Monitors' general manager Michael McNamara. "While giving renters very little relief, increasing gross rental yields are expected to drive stronger property markets in the eastern capital cities, especially in the apartment markets.

"Investors will see stronger investment fundamentals as a reason to prefer property as an asset class."

McNamara says Generation Y - now in their late twenties and leaving home to enter the rental market - are pushing up rents in the inner-city markets. "Gen Y, for the most part, would rather pay exorbitant rent in inner-city locations than live in what they see as the cultural wasteland of suburbia."

Some of the key points among the raw data in the report:-

� The highest housing rents are paid in Darwin, where $410 per week is typical. Sydney, Canberra and the Gold Coast each have median weekly house rents of $400 per week.

� Melbourne continues to have inexplicably low rents, with $330 per week typical for houses. Melbourne apartments typically rent for $290 per week, which is cheaper than every mainland capital except Adelaide. These relatively low rents occur despite 16% annual growth in housing rents and a 12% increase in unit rents in Melbourne.

� Apartments continue to provide better yields than houses, with apartments providing average gross yields between 0.5 and 0.9 percentage points better than for houses in most cities. In Sydney, typical yields on units are 4.9% compared with 4.0% for houses, while in Canberra the 5.7% gross returns on units are considerably better than the 4.8% for houses.

� Hobart provides the highest returns on houses - 5.2% gross yields are typical in the Tasmanian capital. Darwin is the only other major city with gross returns above 5%. Canberra and Darwin, with 5.7% gross yields, have the best returns on units.

� Perth has the worst rental returns, providing 3.4% on houses and 4.2% on units. This is despite 23% annual growth in house rentals and a 21% increase in unit rents - and reflects over-heated sale prices. "Low rental yields in Perth show that its property market is Australia's most over-valued," McNamara says.

� Returns have improved in virtually every major city over the past 12 months on the back of sharp rent rises - or, in the case of Darwin, falling sale prices. Typical returns on Adelaide units have risen from 4.7% a year ago to 5.0% today, while gross yields on Sydney houses are 4.0%, up from 3.8% a year ago.

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This article was written by Terry Ryder & is taken from the Investor Alert page of the Hotspotting website http://www.hotspotting.com.au. We highly recommend this website for people interested in real estate.

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