RENTAL RATES OF GROWTH SLOWING
According to CoreLogic, rents were up 0.7% in October, roughly equivalent to the September reading (0.6%), but lower than the trend rate of rental growth earlier this year.
Some of the strongest rental markets, such as Perth and Darwin, are now seeing a clear easing in the annual trend of rents. In most other regions the trend in rents is generally holding firm or accelerating. Over the past three months the largest rise in rents has come from Sydney, up 2.4%, followed by Brisbane, regional Queensland and regional New South Wales (all up 2.3%). At the lower end of the spectrum was Perth, where rental growth has slowed abruptly with rents only rising 0.6% over the three months ending October.
Unit rents underperforming relative to houses
Across the combined capitals, unit rents have generally under- performed relative to houses, rising 1.9% and 1.6% respectively over the three months ending October. Across the regional markets, unit rents have shown a higher quarterly growth rate relative to houses (2.3% compared to 2.1%). Gross rental yields have continued to diminish in October, falling to a record low nationally of 3.27%. Sydney (2.44%) and Melbourne (2.74%) are showing the lowest rental returns due to lower rental growth relative to a high rate of capital gain. The unit sector has historically shown a higher gross yield profile, and that remains the case, with the gross yield on a unit holding 55 basis points above houses nationally.
Rate of rental growth easing
Although the rate of growth in both housing values and rents are easing, we are likely to see housing prices continue to rise faster than rents over the coming months. If this is the case, rental yields are likely to trend even lower. While low yields are not too concerning for investors at a time when interest rates are so low, a rise in interest rates could see a larger portion of investors facing ownership costs that higher than their rental income.
International borders soon to impact on rents
With international borders reopening, CBD apartments and those located near education institutions should soon see their vacancy rates fall, and rents increase.
Unit values appreciating at a slower rate
Apartments continue to record lower rates of growth, compared to houses. In Sydney, when units are deducted from the data, houses have risen a staggering 30.4%, whereas units have managed just 13.6%. In Melbourne, it’s 19.5% against 9.2% respectively. This trend is less evident regionally, where the performance gap is much slower. With affordability now a significant factor for houses, we expect demand to increase for units – particularly as international borders open. The gap between the median price for Sydney houses and units is now a whopping $500,000. Tightening credit availability is anticipated to begin rebalancing market conditions towards the end of the year.
GROSS RENTAL YIELDS NATIONALLY
Sydney 2.5%
Melbourne 2.8%
Brisbane 3.9%
Adelaide 4.1%
Perth 4.3%
Hobart 3.9%
Darwin 6.2%
Canberra 3.9%
National 3.3%
SHOULD I GET A FRESH RENTAL APPRAISAL?
It’s important to keep track of how well your investment property is performing, and not just from a yield perspective.
The best way to do that is with periodic rent and property value appraisals. To find out if your property is getting the best yield possibly, a rental appraisal will consider all the factors influencing the market. This appraisal also determines how much rent could be charged, whether you can or should increase it, or whether you need to make improvements to the property. Asking us for an updated appraisal of its likely sale price, at the same time, also helps you consider if you should simply sell up and move on to something else.
An experienced property manager has an industry standard set of quality assurance guidelines to follow when conducting a rental appraisal on a property. This incorporates factors such as the status of the current lease, improvements that have been made to the property, the current condition of the property, or whether maintenance work or renovations might be required and local market conditions. Your agent will need to take careful consideration of all of these before determining a recommendation.
Market conditions change all the time, so a rental appraisal not only makes sense, it’s a necessity for the sake of your investment and your future. Ask for one today.
THE VALUE OF A TRUSTED PROPERTY MANAGER
Renting out your property comes with a range of responsibilities, so it’s important you have confidence and trust in the person managing your property on your behalf.
Being distanced from the day-to-day details of your property has its advantages, but a fine balance must be struck between things being taken care of, and you being completely out of the loop. Communication is key - it only takes one instance of crossed wires for trust to be questioned and for you to start considering whether you need a new property manager.
Your first contact with your property manager, when your rental goes on the market, should give you a clear indication of how things will work. This is when you can establish the structure of the relationship – what you want to be informed about, how often you want to hear from them and so on. Your property manager of course has the professional skill and expertise to navigate things quickly and easily as they happen, but should also be discerning about what things you need to be updated on in real time, and what can be noted down to report back on later in a general update. Knowing their skill set and trusting them to do as you wish is important - after all, that's why you’re paying property management fees! However, you should never be cautious or unsure about questioning what’s going on with your property.
If there’s been damage to your property, consecutive delayed rent payments, or a change to the tenants’ situation such as a new baby, a new pet, or a completely new housemate, you should expect to be informed immediately. If you find out about any of these things when it’s too late – i.e. a badly handled incident has permanently damaged the property, or tenants suddenly disappeared due to rental arrears – then you may need to consider whether your property manager has been as diligent as you expected.
A property manager can do all the things you need in a fraction of the time it would take you, and is also much better positioned to solve problems as a professional and objective third party. However, they may not always do it the way you would like. Situations that permanently impact on the appearance or value of your property, or the status of your lease agreement should ultimately be put to you for final decisions – especially when you’re the one paying for the solutions they implement.
In most cases, landlords discover that the cost of having a property manager is absolutely worth the investment. Not only can they navigate the complexity of forms and paperwork, they also ensure boundaries are established between you and the tenant, make all the proper checks of a tenant's history, as well as take care of the important legal and financial details that are much better taken care of by someone who knows that they’re doing.