Highlights

• Cotality's October Home Value Index report says gross rental yields are continuing to repair, rising to 3.85% nationally, the highest since August 2019.

• According to Cotality, gross yields across the capitals range from 3.4% in Sydney to 6.5% in Darwin.

• The rental market is showing signs of cooling.

• Higher yields are coinciding with a sharp pullback in investor buying.

A higher rental yield looks appealing on paper, particularly when rents keep rising. But the headline percentage can improve simply because property values fall, and that does not automatically make an investment safer.

Why Yields Have Climbed to a Seven-Year High

Cotality's October Home Value Index report says gross rental yields are continuing to repair, rising to 3.85% nationally, the highest since August 2019. Gross yield is annual rent divided by property value, before any costs. Cotality said yields are improving because rents continue to push higher and housing values trend lower. National home values fell 1.1% in September and are now 5.2% below their March 2026 peak, according to Cotality. Rents, meanwhile, rose 0.3% in the month in seasonally adjusted terms and 5.5% over the year. Cotality's national median dwelling value is $899,236. The distinction matters because the headline rule rarely tells the entire story. Timing, eligibility and supporting records can change the outcome for two people facing seemingly similar circumstances.

The Cities and Property Types With the Highest Returns

According to Cotality, gross yields across the capitals range from 3.4% in Sydney to 6.5% in Darwin. Melbourne sits at 4.1%, Perth at 4.0%, Adelaide at 3.6% and Brisbane at 3.5%. Hobart and Canberra are both at 4.4%. The combined capitals figure is 3.7%, while combined regional markets are at 4.3%. In Sydney, Cotality puts unit yields at 4.4% against 3.0% for houses. In Melbourne, units yield 5.2% and houses 3.5%. Darwin units top the table at 7.5%, while Canberra units yield 5.5% and Perth units 5.2%. High yields do not always mean weak prices. A practical decision starts with the numbers, but should not end there. Compare the likely benefit with compliance costs, the chance that assumptions change and any restrictions that apply.

Rents Are Rising, but More Slowly

The rental market is showing signs of cooling. Cotality said September's 0.3% rise was the smallest monthly increase since May 2025. Although rental growth looks to be slowing a little, gross rental yields are continuing to repair, the report said. Cotality said weekly rents have risen by about $200 over the past five years. Research director Tim Lawless said this has been a period of unprecedented rental growth that has stretched rental affordability to the worst levels on record. The central bank made a related point in its October Financial Stability Review. A policy can create an opportunity while still leaving taxpayers responsible for checking the conditions and keeping suitable evidence.

Where the Tax Changes Come In

Higher yields are coinciding with a sharp pullback in investor buying. Less favourable negative gearing and capital gains tax arrangements have already seen a sharp reduction in investor demand, Cotality said. One observation is useful context, not a guarantee about what happens next.

Hypothetical Example: Gross Yield Versus Cash Flow

That is a gross yield of about 4.46%, above the national average. At exactly 3.85%, the same unit would rent for about $518 a week. Cash flow, deadlines and documentation deserve attention before any commitment.

What to Watch Next

Cotality's next monthly index, expected in early November, will show whether yields keep rising as values fall and rent growth slows. If rent growth continues to ease, yields would rely more heavily on further price falls to keep rising. Proposed rules and draft administrative guidance should be distinguished from provisions already enacted.

General information only. This article is educational and does not constitute personal financial, tax or legal advice.