Rental yields will be a big focus for investors in 2026 as property price growth moderates, and rents continue to rise.
After strong growth in the Australian property market in 2025, median houses prices ended the year 8.8% higher. With slower growth of between 6% and 8% is anticipated this year, investors are now looking to ramp up their opportunities.
“When the market shifts from strong capital growth to steadier conditions, investors naturally start looking harder at cash flow, and what the property is actually delivering week to week,” LJ Hooker Head of Research and Business Intelligence Mathew Tiller says.
But how are yields determined? Gross rental yield is essentially the cash flow relative to the cost of the home, REA Group executive manager of economics Angus Moore explains.
“That is the way it's calculated – it’s the total rent you earn over a year, divided by the price of buying that home. So you can kind of think of it like the interest you would earn on a bank account, or the dividends on a share in a way,” he says.
“It's sort of an indication of the ongoing return that you can expect to get from any new investment (and) it is important to note they are gross.
"‘Gross’ has an important meaning, which is that it's not considering the costs associated with that investment, things like maintenance, depreciation, agency, council rates, and crucially, obviously, financing costs, the interest on your mortgage.”
A key point when it came to yields is while they were a great starting point, they were not the entire story, Mr Tiller explains.
“Some of these regional markets can be more volatile, so it’s worth looking at vacancy rates, the depth of the local economy, and how quickly new supply can come online,” he says.
“And finally, gross yield is the number that gets quoted most because it’s easy to calculate, but net yield is the one that matters, because that’s what ends up in your bank.
“Once you factor in property management, insurance, maintenance, rates, strata where relevant, and vacancy, net yield can look very different to the headline number.”
The areas to watch
Typically, units carried higher gross rental yields than detached houses, and regional areas had higher gross yields than their capital city counterparts, Mr Moore notes.
“That's not strictly true for all regional areas versus all city areas, but as a sort of general rule that largely holds,” he adds.
“Similarly, smaller capitals tend to carry higher gross rental yields, again not uniformly.
“Certainly, Sydney houses are lower than what we see in Melbourne, Brisbane, Adelaide and Perth. Units, there's not as much of a gap across the capital cities though.”
Smaller capitals like Darwin tend to carry higher gross rental yields. Picture: Getty
Mr Tiller notes higher yields are typical in regional markets due to having a lower median price point, fewer dwellings, and fewer sales transactions.
“It doesn’t take much of a lift in demand to tighten the rental market,” he explains. “If population grows off the back of an employment boost, a new project, or a new mine, supply can’t respond quickly, and that’s when rents rise faster than prices for a period, lifting yields.”
When it comes to looking at a list of suburbs with close to or above 10% yields, they were overwhelmingly part of regional markets, Mr Tiller says.
A heavy concentration of these suburbs were part of mining linked Western Australia (WA) locations, plus a few standout regional centres in Victoria and Queensland.
The Victorian suburb of Echuca features for both units and houses, with units around 13.0% gross yield and houses around 10.6%.
In WA, Coolgardie is around 12.4%, Newman is around 12.4% for units and 10.3% for houses and South Hedland is around 12.2% for units.
“We also see a strong Pilbara cluster sitting around that 10% plus mark, including Pegs Creek at around 11.4% for houses and 10.2% for units, Millars Well around 11.1%, and Baynton around 10.5%, with Port Hedland units near 9.7% which is right on the doorstep,” he says.
Queensland showed the same regional pattern, Mr Tillar adds, with Collinsville around 10.9%, with Dysart, Moranbah and Townview all hovering just under 10%.
This article first appeared on Mortgage Choice and has been republished with permission.
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