Australia's Property Market: key trends for landlords

The latest CoreLogic Housing Value Index report highlights crucial trends that landlords should be aware of as Australia’s property market continues to evolve. While opportunities remain, the current landscape calls for mindful management and an understanding of tenant challenges.

Stabilising Rental Growth

Rental growth in October 2024 showed signs of easing, with a national increase of just 0.2% for the month—markedly lower than the 0.7% average seen over the same period in the past three years. Annual rental growth has now softened to 5.8%, the lowest since early 2021. For landlords, this may suggest a cooling phase where rental hikes are less aggressive, yet maintaining healthy occupancy rates could require flexibility and consideration of tenant affordability.

City-specific data indicates that unit rents, in particular, have seen a decline in several major cities over the last quarter. Sydney, Melbourne, Brisbane, Hobart, and Canberra all recorded falls, with Canberra experiencing the most pronounced dip at -1.5%. This trend could influence landlords with urban rental properties to adopt competitive pricing strategies to maintain tenant retention.

Gross Yields and Financial Balance

Gross rental yields across capital cities were recorded at 3.47% in October, a slight decrease from May’s recent high of 3.52% and notably below the pre-pandemic decade average of 3.9%. For landlords, this indicates that while investing in property remains viable, profitability margins are tighter. Higher mortgage rates—up approximately 3.4 percentage points from pandemic lows—and increased maintenance costs due to rising construction and labour expenses present challenges.

Landlords should be cautious when recalculating financial expectations and consider the balance between maintaining rent levels and ensuring property upkeep and tenant satisfaction.

The Role of Supply and Demand

The landscape of rental demand has been affected by changing migration patterns and shifting household sizes post-pandemic. A slight cooling in net overseas migration and an increase in average household size have likely contributed to easing rental pressures. Advertised rental stock has risen in several regions, giving tenants more options and reducing urgency. Landlords in cities with more significant inventory increases, such as Sydney and Melbourne, might find it advantageous to emphasise property quality and added-value features to attract and retain tenants.

Navigating New Construction Trends

A persistent slowdown in new residential construction is another factor influencing the market. Dwelling approvals remain below average, and construction rates are trending lower, which could mean that competition among existing rental properties may eventually tighten if demand increases. However, the current trajectory suggests that landlords should not expect a sharp rental market shift in the short term, barring significant policy changes or economic events.

Gross rental yields nationally