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Better yield expected

By Brett Pilgrim

According to the Real Estate Institute of Australia (REIA), the housing market has started to cool off. What does this mean for you? Well, after reaching the cyclical peak in prices, declining costs of property purchases mean an increase in rental yield.

The REIA's recent Real Estate Market Facts report reveals house prices across the country have peaked and are beginning to level off. Only Sydney experienced an increase in median house prices for the September quarter (up 3.8 per cent), and Melbourne remained flat. All other capital city markets declined in the three months to September.

The biggest loss was felt by Hobart, at 5.3 per cent, while the remaining capital cities fell between one and 1.9 per cent. Adelaide experienced a drop of 1.8 per cent, with the median price now sitting at $412,500 according to a 10 December REIA statement.

Of course the classic equation for rental yield has the price of the property – whether purchase price or market value – as the denominator. So, naturally, when this part of the equation decreases, the resulting rental yield is better.

This doesn't improve anything much for those that currently own rental properties, but for investors considering adding another property to their stable of income-earners, rental yield going forward should be relatively better, if the peak of this cycle has indeed passed.

Rentals in Adelaide

For those looking to purchase an investment property in Adelaide, the softening market could present a real opportunity. SQM Research shows that rentals in Adelaide have achieved an increase yield in all sectors of the market for the quarter to 12 December.

Yield for all houses has grown by an average of 1.1 per cent, while three bedroom houses specifically have increased by 0.2 per cent. Units have risen by 0.5 per cent – two bedroom units achieving a huge 2 per cent jump in yield. All of these signs point to a market that is increasingly geared towards property investors.

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