missing_investor_420-420x0 With Australia’s residential property sector finally coming off the boil, investors should be set to head back into the market to take advantage of easing demand and weakening buyer competition.

But while owner occupiers and first home buyers are fast disappearing from the market, the latest figures from the Australian Bureau of Statistics show that investors aren’t exactly jumping in to take their place.

It’s a sign of just how strong Australia’s property market became over the last 18 months that investors are now finding it a bit of a struggle to see a profitable way in.

One of the biggest problems is the across-the-board decline in gross rental yields seen in every capital city for both houses and units in the last year, according to analysts RP Data.

(Gross rental yield is calculated as a percentage of the annual rent versus the purchase price; it does not include expenses in maintaining the rental property.)

RP Data estimates that it takes a rental yield of 5.5 per cent or better to be attractive enough to draw investors into the market in any great numbers.

Many capital cities – particularly for houses – don’t even come close to that threshold:

HOUSES               Jul-10                    1 Year Change

Melbourne             3.5                              -0.6                        

Perth                     3.8                              -0.4

Adelaide                3.9                              -0.3

National                3.9                              -0.4

Sydney                  4.1                                0.3

Brisbane                4.2                              -0.3

Canberra               4.6                               -0.3

Hobart*                 4.9                               -0.1

Darwin                  5.2                               -1.2

UNITS                 Jul-10                    1 Year Change

Melbourne            4.1                               -0.5

Perth                    4.3                               -0.2

Adelaide               4.5                               -0.3 

National              4.8                               -0.3

Brisbane               4.9                               -0.3

Sydney                 5.1                               -0.3

Canberra              5.3                               -0.2

Hobart*                5.4                               -0.5

Darwin                 5.6                               -0.5

Sure, gross rental yields are a blunt instrument for measuring the profitability of an investment  — because they don’t account of other expenses and outgoings – and what ultimately matters is the rental yield calculated for an individual property.

But the data does point out pretty clearly how spiraling property prices in many of the capital cities have put real pressure on would-be investors.

Vacancy may be tight in many cities but rental growth has proved weak-to-moderate, which means investors are having to wait longer to see a decent rental return after paying those high purchase prices.

Then there’s the other risk that comes with buying into a near-peak market — pay too much above market value and you can end up sacrificing months or even years of potential capital growth.

Avoiding both these scenarios are sure to be on the forefront of investors’ minds heading into the spring property season.

*Due to the low volume of sales in Hobart, rental yield figures cited by RP Data cover the period from June 2009 to June 2010. 

Story by Chris Vedelago Fairfax Digital