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Residential rents in Australian cities grow at slowest pace on record

Sydney and Hobart have seen the strongest rental growth over the past year, according to the data from the May CoreLogic RP Data index report which, according to the firm indicates a disconnect between demand and supply.

The data also shows that rents in Perth, Darwin and Canberra have dropped by 4.5%, 5.5%
and 0.6% respectively and overall combined capital city rental rates increased by just 0.1% in May.

Combined capital city rental rates are recorded at $488 per week and on a quarterly basis they have increased by 0.6% and by 1.5% over the past 12 months, down from and annual increase of 2.2% a year ago.

The report also shows that with home values growing faster than rents, gross rental yields continue to edge lower.

‘Sydney stands out as seeing strong population growth which is creating more demand for accommodation in the city,’ said index report author Cameron Kusher.

Although Sydney and Melbourne recorded low rental yields, Kusher said that investors in these two cities are clearly not targeting rental returns. ‘It appears to be purely a capital growth play and likely to remain this way, at least for the time being,’ he added.

For a more balanced approach to property investment he recommends investors look to markets like Brisbane or Adelaide which currently appear to be more financially attractive, however buyers should not expect value growth to match that of Sydney or Melbourne any time soon.

According to Kusher, the annual rate of rental growth is now the slowest on record. He said the sluggish rental appreciation can likely be attributed to the ongoing boom in dwelling construction across Australia's capital cities accompanied by record high participation in the housing market from investors.

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