Gross rental yields on houses around Australia are stopping property investors in their tracks.
According to CoreLogic RP Data, gross rental yields across Australia's capital cities fell to 3.4% from as high as 4.2% in May 2012.
It's just another reason why investors are shunning the property market at the moment. Combined with rising interest rates on investor mortgages and higher required deposits, property certainly looks unattractive for many investors.
"Gross rental yields at record lows and affordability constraints are acting as a further disincentive, particularly in Sydney where the median unit price is equal to, or higher than the median house price in every other capital city," CoreLogic RP Data head of research, Tim Lawless has told Fairfax Media.
Mr Lawless also added that new housing supply coming on stream was also helping to ease the growth in home values.
There's no denying that Sydney and Melbourne house prices have come off the boil recently. Sydney saw growth of just 0.3% in October 2015 while Melbourne recorded 0.6%. For the year, Sydney median home prices are up 15.6% and Melbourne 12.8%. Perth and Darwin continue to experience the fallout from the tapering off in the resources boom, with median prices falling 2.8% and 0.1% respectively.
Perhaps showing how Australians are flocking to other states and away from NSW and Victoria, Hobart and Adelaide recorded growth of 1.4% and 1.5% respectively, although Brisbane house prices went backwards to the tune of 0.2% in October.
The big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have all moved to stem the flood of investor property lending, imposing higher interest rates and stricter lending criteria, including larger deposits in recent months.
That's despite the Reserve Bank of Australia (RBA) keeping the official cash rate on hold at 2% since May when it lowered the rate by 0.25%. The central bank meets again tomorrow to discuss the rate, and economists appear to have mixed views over the outcome. Most are predicting the bank will stay on hold – but the RBA could surprise the market with a 0.25% rate cut.
The question is: Will the banks pass on some or all of the rate cut to borrowers? Most commentators suggest they could pass on some, but not all of the cut.
Foolish takeaway
There are plenty of signs suggesting house prices are going to fall – falling rental yields is just another factor driving investors out of the market.
