Lower Interest Rates & Investment Property

Report from The Australian newspaper:

Investors, in particular, have "no pressing reason" to get into the market, Davies says.

"It still gets down to the fact that rental yields nationally are still very low: they're still on average about 3 per cent across the country.

"While mortgage interest rates have come down recently with the RBA cutting rates, rental yields are still much lower than the cost of funding an investment property would be.

"That can't help but hurt demand from investors," he says.

Rentals have slowly improved over the last three years, rising in all capital cities, says Cameron Kusher, an analyst at property researcher RP Data.

"Over the three years to July 2008, strong rental increases have directly resulted in gross rental yield improvements," he says.

Someone who bought the median-priced house in July 2005 had an average gross yield of 4 per cent, he says. If they still own that house and are achieving current median rents, that yield has increased to 5.3 per cent.

For units, the median-priced property yielded 4.7 per cent in 2005 and is now yielding 6 per cent.

"Even in the worst-performing market, projected rental yield is achieving 5 per cent (gross) for houses (Sydney) and 5.9 per cent for units (Sydney and Melbourne).