B Invested

A landlord’s market

It’s been a hectic start to the year for the rental property market, with open inspections in some capital cities attracting big crowds of potential tenants.

Property managers had not known what to expect when listing rentals in the first weeks of January, with large case numbers of the Omicron variant of COVID causing plenty of people to have to isolate at a moment’s notice, while others may not have wanted to venture out and risk catching it.

But when they did, they were pleasantly surprised to see queues of people turning up to inspect.

Last week in south west Sydney, more than 200 people turned up to a rental open home, causing the police to attend and control the crowd.

That sort of competition puts landlords in a position to capitalize by negotiating an increased rent.

The numbers stack up

Generally, when a vacancy rate is lower than 3% it favours landlords and when it’s higher, it suits tenants better, because they can be picky with the properties they apply for.

Right now, Australian capitals as a whole are seen as being landlords’ markets. The national average vacancy rate is 1.7%, according to a recent report by Domain. This is down from 2.4% at the end of 2020.

But national averages are not as relevant as vacancy rates in your specific areas. As far as capitals go, Hobart has the tightest market with 0.3% vacancy, down from 0.5% a year earlier. Adelaide is next with 0.4%, down from 0.7%. Perth is at 0.6%, down from 0.9% and Canberra is a flat 1%, down from 1.3%.

Brisbane is 1.3%, down from 1.8%, while Sydney (2.6% down from 3.7%) and Melbourne (3.2% down from 5.2%) are also tightening.

Darwin, with a 1.3% rate is the only city that had a lower rate (1.0%) one year ago.

Of all these markets, Melbourne is the only one with a vacancy rate higher than 3%, though only just. And the fact it has nearly halved in the past year means it should be on the way to a landlords’ market.

(https://www.smh.com.au/property/news/a-landlord-s-market-big-drop-in-rentals-signals-tough-times-for-tenants-20220106-p59mcg.html)

How do these conditions come about?

A lot of b Invested clients buy their properties in Queensland, Sydney and now increasingly in Perth. These markets have been great for investors holding properties in recent times, with value growth and an increase in rental return. It appears these conditions will continue to be favourable for the next year at least.

So why have vacancy rates been coming down? There could be a number of reasons. First, two years of pandemic lockdowns and financial uncertainty may have made people less willing to commit to a mortgage. They may be uncertain about their job security or their income might already have been affected, which means their best option is to rent.

Another factor is that restrictions on international travel have means that more people are holidaying domestically and more rental properties have been turned into short term holiday lets, taking regular stock out of the market.

Finally, there is the price boom that has been happening around Australia for the last 12 months. A lot of owner-occupiers have been priced out of their markets and may feel that they are better to rent a while until competition cools down a little bit.

Importance of raising your rent

One of the great advantages of inflation for property investors is that their rental return continues to go up over the years while your debt comes down. The longer you hold property, the more money it will pay you.

But it’s important to take advantage of conditions when they are ripe for a rent raise.

Say you get an extra $30 a week for a rental property, it equals an extra $1500 a year. If you have 5 properties in your portfolio, that becomes an extra $7500 a year. Without having to do anything.

If you need help or more information, reach out to b Invested on 1300 367 925 or at admin@binvested.com.au

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