House prices across Australia might be going nowhere fast at the moment, but the good news for property investors is that rentals are on the way up.
New data from the Real Estate Institute of Australia www.reia.com.au reveals that median weekly rents climbed in every major city over 2010-2011, with the only exception being Darwin.
The average going rent for a three bedroom home is up by 5.3 per cent in Sydney to $400 per week, 4.6 per in Melbourne to $340, 3.1 per cent in Hobart to $330, 2.6 per cent in b to $390 and 1.4 per cent in Brisbane to $350.
Leading the charge is Adelaide, where rents have risen by a substantial 6.7 per cent to $320 per week.
Strangely enough this across the board increase occurred despite the fact that vacancy rates, which have been incredibly tight in recent times, rose in all cities apart from Perth and Brisbane during the same period.
Although vacancies remain under the 3 per cent threshold, which is considered an indicator of a rental property oversupply, it would seem that statistically speaking, tenants again have the luxury of being a bit more selective about the standard of rental accommodation they’re willing to accept.
Sydney boasts the lowest vacancy rate in Australia at 1.5 per cent, followed by Adelaide at 1.8 per cent, b at 2.2 per cent, and then Brisbane, Hobart and Perth at 2.5, 2.7 and 3.5 per cent respectively.
So what is causing the market to loosen up a little?
According to REIA president Pamela Bennett, the answer could lie with Gen Y’s who have been spooked out of the market by all the uncertainty surrounding interest rates, the current political environment and of course, a shaky global economy.
“The Y Generation are very well informed and are thinking “OK, I might stay another year at home’,” she says.
Bennett says that rising vacancies do not normally coincide with rising rental prices, however there are currently other factors pushing the cost of renting upward.
“Usually when vacancy rates get tight, rents go up,” she says. “However, a lot of other things are contributing to the rent. Utilities like water and rates are contributing to the increase.”
Bennett also believes that some landlords are playing catch up and are only now taking the opportunity to build last year’s interest rate rises into their lease renewals.
However she cautions that hanging on to good tenants should be the priority for landlords in light of these slowly climbing vacancy rates.
“In the rental market, agents will tell you if you have a good tenant who’s responsible and paying. Hang on to them. It’s a two-way partnership.”
As always, the priority for investors is to ensure they offer the rental market clean, well maintained and well located properties that are in high demand due to their proximity to amenities and infrastructure such as public transport, shops, entertainment and of course, employment.
Most of all, you have to know your market and target them accordingly. If you get those ingredients right, you will minimise your vacancies and maximise your returns.
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