'Sluggish' rental growth tipped to continue

If investors were unimpressed with the dismal rental growth of 2015, the forecast for the next few months isn’t looking much better.

CoreLogic RP Data’s review of the rental market found that rents increased by just 0.3 per cent in 2015 – a record-low rate of annual growth (based on records back to December 1996).

“We’ve never seen rental growth as sluggish as it is at the moment,” CoreLogic RP Data research analyst Cameron Kusher said.

“Furthermore, we’re expecting to see more of the same over the coming months due to increases in the supply of new housing, rental stock and a further slowdown in migration rates,” Mr Kusher said.

The only cities to see an increase in weekly rental rates were Sydney with an increase of 1.9 per cent, Melbourne (2.2 per cent), Hobart (0.6 per cent) and Canberra (1.9 per cent) while rates fell in Brisbane by (-0.3 per cent), Adelaide (-0.2 per cent), Perth (-8.0 per cent) and Darwin (-13.3 per cent).

Combined capital city rental rates are $486 a week for houses and $464 a week for units.

A comparison between December 2015 and December 2014 shows in 2014 annual rental growth was slowing but was tracking at a much higher 1.8 per cent, which highlights just how much the rental market eased throughout 2015, Mr Kusher said.

“The construction boom across the capital cities, coupled with slowing population growth, low mortgage rates and the recent heightened level of activity from investors are the major contributing factors to the slowing rental growth in 2015,” he said.

“Although Sydney and Melbourne saw the largest ramp up in new housing supply, both cities still recorded rental increases over the year, although rental growth is slowing relative to 12 months earlier.”

Mr Kusher said it is clear that the increase in investment stock continues to provide landlords with little scope to lift rental rates while the low mortgage rate environment provides little incentive to push yields higher.

“We envisage that growth in rental rates is likely to remain weak or potentially slow even further over the coming months,” he said.

“The good news for those looking to rent is the possibility that rental rates will fall even further over the coming year.”

While the news for renters will be welcomed, Mr Kusher highlighted that investors may be facing weaker capital gains coupled with little in the way of rental growth or yield.

“The large pipeline of residential construction activity and recent high levels of investment demand means that renters are likely to continue to have plenty of choice.”

[Related: Investors warned as property market turns]

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