Expect Tepid Rental Gains in 2016

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Tuesday, January 19th, 2016
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Residential rental levels in Australia’s major cities are expected to see only tepid growth in 2016 after posting a record poor performance last year.

According to data from CoreLogic RP, residential rents grew by just 0.3 per cent in 2015, dragged down by sharp declines across a slew of capital cities. This incremental gain compares very poorly to December 2014, when nationwide rental growth was 1.8 per cent.

With the Western Australian economy still ailing from the demise of the mining boom, Perth saw rents plunge by eight per cent, while in Darwin they dropped a staggering 13.3 per cent.

In both Brisbane and Adelaide rents edged downward, by 0.3 per cent and 0.2 per cent respectively, compelling some landlords to provide incentives to renters in order to ensure that units remained occupied.

In Australia’s two most populous cities, rental growth remained comparatively robust however, with Melbourne taking first place with a 2.2 per cent increase, and Sydney posting an impressive 1.9 per cent gain.

Canberra also saw reasonable growth at 1.9 per cent, while in Hobart rents edged higher by 0.6 per cent.

According to CoreLogic RP analysts, the low national growth rate marks a nadir for Australian rental levels.

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

CoreLogic RP foresees more of the same in 2016 as the housing supply continues to expand in the wake of construction booms across major cities, while population growth eases on the back of slowing migration rates.

Australia saw a record number of housing starts in 2014-15, with work commencing on 211,860 homes during the year-long period. This marks an increase of 13 per cent compared to the preceding record year of 1994.

Home construction is expected to remain robust in 2015-2016, with the Housing Industry Association foreseeing the creation of 200,000 more dwellings

“The increase in investment stock continues to provide landlords with little scope to lift rental rates, while the low mortgage environment provides little incentive to push yields higher,” said Kusher.

“Growth in rental rates is likely to remain weak or potentially slow even further over coming months. The news for those looking to rent is the possibility that rental rates will fall even further over the coming year.”

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