Whilst home values in Australian capital cities have become stagnant, falling 0.4% in Q1 2011 and 2.1% seasonally, rental rates have increased by 4.6% in the period Q4 2010-Q1 2011 according to RP Data-Rismark.

Tim Lawless, research director, RP Data, said: “In contrast to the fall in home values, gross rental yields have been improving with apartments and houses now delivering a gross return of 4.9% and 4.2%, respectively, in March 2011 according to RP Data-Rismark’s estimates.”

Lawless states that the rental market is tight and that combined with a flat to negative change in home values is giving rental yields a boost.

The Darwin apartment market has the highest rental yields currently at 5.7%, closely followed by apartments in Hobart and Canberra at 5.4%, Brisbane with 5.2% and Sydney 5.1%.

Lawless said: “With household incomes growing at 6% pa, interest rates potentially approaching the peak of the tightening cycle, rents increasing, and house values going nowhere, buyers are seeing an improvement in their position. First time buyers are now representing a bit less than 15% of all owner occupier housing finance commitments.”

In non-capital city regions house values have fallen 0.5% seasonally for the previous 12 months and are down 1.8% seasonally during Q1 2011.