Maybe the expenses are landlord-loaded for tax purposes, but read this data then tell me with a straight face “There is no residential property bubble”. The only remaining question is when may we expect a reversion to long term averages?
FROM PHILIP SOOS 17 December 2013:
Across Australia in Nov 2013, the gross yield is 4%, and the net is 1.9%, as investment property expenses were 52% of gross rental income (for 2011, latest ATO data).
Because term deposits have no costs, apart from calling them in early, the gross yield is the same to the net yield. So why would a rational investor want to purchase residential property given TD net yields have always been much higher, with less price and insolvency risk and no tenant risk? Obviously, investors are after capital gain, driving net yields down to such ridiculous levels.
As of 2013, TD gross yield is 4%, the same as residential property, but the net yield is more than double (4% vs. 1.9%).
Table 3.1.4: Australian Capital City Yields 2013[1]
City | Gross Yield | Expenses % Gross Rent | Estimated Net Yield | ||||||
Houses | Units | Houses | Units | ||||||
RP Data | APM | RP Data | APM | RP Data | APM | RP Data | APM | ||
Sydney | 3.9% | 4.58% | 4.7% | 4.99% | 47% | 2.1% | 2.4% | 2.5% | 2.6% |
Melbourne | 3.5% | 4.37% | 4.2% | 4.73% | 47% | 1.9% | 2.3% | 2.2% | 2.5% |
Brisbane | 4.6% | 5.12% | 5.5% | 5.49% | 62% | 1.7% | 1.9% | 2.1% | 2.1% |
Adelaide | 4.3% | 4.85% | 4.8% | 5.20% | 54% | 2.0% | 2.2% | 2.2% | 2.4% |
Perth | 4.3% | 4.98% | 4.7% | 5.56% | 50% | 2.1% | 2.5% | 2.3% | 2.8% |
Hobart | 5.5% | 5.38% | 5.3% | 5.13% | 49% | 2.8% | 2.8% | 2.7% | 2.6% |
Darwin | 6.1% | 5.59% | 5.9% | 5.82% | 52% | 2.9% | 2.7% | 2.8% | 2.8% |
Canberra | 4.5% | 4.71% | 5.3% | 5.48% | 63% | 1.7% | 1.8% | 2.0% | 2.0% |
Australia | 4.0% | – | 4.7% | – | 52% | 1.9% | – | 2.3% | – |
[1] RP Data-Rismark data is for November 2013 (RP Data 2013a: 3); APM data is for September 2013 (APM 2013: 3). Expenses as a percentage of gross rental income is derived from ATO taxation statistics for investment properties by state/territory in 2011 (ATO 2013b).
Wait until capital gain turns into capital loss.
Don’t be surprised to see the greatest ‘margin call ‘ in history by banks onto property investors when such losses become so visible and can no longer be glossed over by media hype and cooked statistics.