Oversupply causes Sydney rents to drop

Sydney apartment rents have dropped for the first time in three and a half years as a construction boom leads to an oversupply, according to a report by online real estate listing firm Domain.

The median weekly rent for units in Australia’s largest city has dropped to $500 in the three months ended Dec. 31 from $510 in the September quarter, marking its first decline since the quarter ended June 2012, the report shows. House rents remained at the record level of $530 a week.

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The decline in rents is another indicator of the cooling Sydney property market, which recorded its worst quarter in four years in the period ended Dec. 31, after home values doubled since 2008.

New South Wales is in the middle of a building boom with a record 32,000 apartment starts in 2015, representing the fifth consecutive year that new construction increased, according to the Housing Industry Association.

The fall in rents in the city “suggests that the record levels of new apartments are now exceeding rental demand,” Domain said in the statement.

The increased supply, along with higher interest rates, has damped dwelling values. Prices in the city slid 2.3 percent in the December quarter, according to CoreLogic Inc.

The lower prices boosted rental yields to 3.49 percent for houses in the December quarter from 3.48 percent. Unit yields stood at 4.19 percent.

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Rents across Melbourne, Adelaide, Hobart and Canberra raced up to record highs, the Domain report shows. Brisbane unit rents increased, while Perth home rents dropped.

Average Melbourne house rents increased to $400 a week from $390, while units were stable at $370 in the last quarter of 2015, according to Domain.