Australia’s property market is shifting, and landlords are at the forefront of this evolution. The latest CoreLogic Housing Value Index reveals both challenges and opportunities for rental property owners, as growth in housing values slows and the rental market cools. While landlords may not see the same rapid increases in rents that characterised the post-pandemic market, there are still strategic decisions to be made for those looking to maximise their investments.
Rental growth slows, but stability remains
The most notable trend for landlords in the September 2024 quarter is the significant slowdown in rental growth. Nationally, rents increased by just 0.1%, the smallest rise in four years. Some major cities, including Sydney, Brisbane, and Canberra, even saw slight declines, with rents falling by 0.5%, 0.2%, and 0.8% respectively. In contrast, Melbourne and Perth managed modest increases of 0.3%, far lower than the sharp rises seen last year.
This deceleration in rental growth can be attributed to a combination of easing demand and affordability pressures. According to CoreLogic, the slowdown in net overseas migration—down 19% from its peak—has reduced demand for rental properties, particularly in the larger cities. Meanwhile, rental affordability constraints have forced many tenants to explore alternative housing options, such as moving in with family or sharing accommodation, which has also dampened demand.
Increased housing supply gives tenants more options
While more competition might seem like bad news for landlords, this could also present an opportunity to ensure that rental properties are priced competitively and well-maintained to attract and retain tenants. As the supply of available properties rises, landlords may need to be more responsive to market conditions and tenant expectations. There may also be more time available to perform small, inexpensive updates that there was no time for during the peak of rental demand, during and post the COVID pandemic.
Where the opportunities lie for landlords
Despite the overall cooling trend, certain areas continue to perform well. Perth remains a standout performer, with rental yields growing 10.8% for houses and 11.7% for units over the past year. Similarly, Adelaide has shown strong growth, with house rents up by 7.9%. These cities, where housing is more affordable than in Sydney or Melbourne, are benefitting from solid population growth and relatively low vacancy rates, making them attractive locations for landlords seeking reliable returns.
Unit values have also risen in six of Australia’s eight capital cities, outpacing growth in house values. For landlords, this signals an increasing demand for apartment living, as many renters turn to more affordable options in the face of high house prices.
Looking ahead: interest rate cuts on the horizon
For landlords managing tight margins due to rising mortgage rates, relief may be in sight. Predictions suggest that interest rate cuts could be on the cards in 2024, providing some breathing space for property owners dealing with high borrowing costs. However, even if interest rates fall, landlords should remain cautious and focus on maintaining steady occupancy rates and long-term tenant relationships.
Gross rental yields nationally
