The Rental Trends Investors Must Look At
The Sound Property team often assess rental yields and trends as one of our “15 Key Investments Drivers” – our holistic research methodology.
Rental Yield for Property Investment
Rental yield is the median rental income divided by the median property price of an area or suburb. Since the rental yield calculation includes price as a variable, results may therefore increase or decrease in a given market, at different times, due to price fluctuations. For this reason, changes in rental yields can be misleading if used as a primary indicator of rental demand.
For example, if prices in a market are escalating and rents stay the same, the yield will compress, or show a negative trend. In other words, a change in this figure can be the result of price movements, rather than any increase in the average dollar amount of rent being paid due to stock deficiencies or increased demand.
Rental Price Trends for Property Investment
It is important to assess the right data when looking at rental trends.
The actual increase in the dollar amount paid is therefore a better indication of rental trends, and the supply/demand relationship. If landlords need to drop the rent to attract tenants, due to excess supply and competition in their market, one could predict that prices will also soften as a result. The movement up or down in asking rents can often signify the health of a market, through the relationship between supply and demand. Basic economics dictate that excess demand relative to supply will push prices up. In other words, prices tend to follow any sustained increase in rents.
SQM Research provide this information in their Weekly Rents Index below. The 12-month change is the best indicator as it provides a wider, and therefore more reliable trend, than a weekly or monthly change.
Holistic Analysis of a Property Investment
When making the decision where to invest it is important to look at rental trends in conjunction with other indicators to give the complete picture of the market. Looking at statistics in isolation may hide vital facts and trends that need to be taken into consideration for a sound investment.
Sound Property’s Free Suburb Profile Reports provide the key facts on any suburb in Australia, from a variety of trusted sources, to identify the best markets for growth and rental yields and help avoid costly mistakes. They will provide you with rental trends, as well as another 14 Key Investment Drivers for growth.
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This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.