YIELDS IMPROVE WITH LOW VACANCY RATES
After years of falling rental yields and high, pandemic-influenced vacancy rates in Sydney and Melbourne, the pendulum has swung and it is now a landlord’s market in some parts of Australia.
This means a majority of property investors are now seeing greater benefit as a result of high demand and tight supply levels within some parts of the rental market. So, after a few years of lower rents, landlords are now seeing increased rental income.
New figures from CoreLogic have found that in the year ending June, capital city and regional rents have risen by 9.1% and 10.8% respectively, a positive sign for property investors who are also able to command a higher price for their property, should they choose to sell.
Demand for vacancies is booming
Demand is currently booming in the rental market across the nation, particularly South East Queensland, as factors such as overseas migration, the return of international students and the easing of COVID-19 restrictions add pressure to the market. As such, renters are willing to pay more to secure a suitable property and this increased demand enables property owners to filter applicants and select higher-quality tenants.
The low vacancy rates recorded across the country are partly due to the behaviour of property investors, who have been selling property more frequently than buying, causing the rental pool to shrink.
According to SQM Research, the vacancy rate across the country decreased from 1.7% to 1.0% over the past year, which equates to one vacancy for every 100 rental properties. With Sydney and Melbourne still recording vacancy rates of just over 1.50%, it’s the remaining six capital cities that have vacancy rates below 1.0%, signifying the challenging conditions across the nation for tenants.
Tenants flocking to regional Australia
they sought a lifestyle change during lockdown. Changing working conditions have also contributed to the demand, as more people are working from home or seeking a property with fewer housemates to reduce the spread of COVID-19. As such, the rental market has faced pressures from all areas of the country, meaning that landlords everywhere can benefit from these changing conditions.
The current landlord’s market is a positive sign for property investors, who are now benefiting from increased rental income, yield, and a greater pool of applicants from which to choose.
Ask your property manager for advice
While the market is prone to fluctuations, owners should consult with their property manager about the current market and assess their rental income against overall yield.
In some cases, it may well be time to increase the rent but it’s always important to consider the value of holding on to good, long-term tenants.
With interest rates and inflation on the rise, many landlords are wanting to review the rent they are asking but, as always, we recommend investors speak to a First National property manager for an appraisal of their situation.
HOW MUCH NOTICE IS REQUIRED BEFORE YOU ENTER YOUR PROPERTY?
Even though it is your rental property, the nature of a lease agreement means you relinquish the right to access it as you wish. The tenant’s right is to have boundaries in place where entry by their landlord or property manager is concerned. The most common reasons to access a property include annual inspections and to hold an open house if the property is being sold. In these instances (and any others), a minimum of 14 days’ notice is required in writing to the tenant to advise them when the access will occur.
Ideally the tenant will make themselves scarce in these situations but by rights they do not have to and can stay put, even during an open house as buyers wander through their home - it’s awkward but it happens. In the event that a landlord wants to grant access to a single buyer, a shorter notice period applies, and this differs from one state or region to the next. It’s commonly 24 to 48 hours however and usually requires a specific time of arrival and departure to be agreed upon. If in doubt, contact the local Real Estate Institute or follow the advice of your property manager. Depending on om the location, you may be entitled to inspect your property once a year, bi-annually, or quarterly. These are the times to identify damage or wear and tear you’d like to pay attention to. Access to a property to conduct repairs, maintenance or renovations is then as stipulated in your lease agreement.
WHAT ARE THE RULES FOR INCREASING RENT?
Tenants sign on to an agreed rental figure at the commencement of a tenancy, but this is usually with the understanding that the agreed rental amount may change over time in line with inflation, market fluctuations, and as a reflection of renovations or upgrades made to the property.
Landlords do have the right to increase rent, but there are strict guidelines around how this increase should be implemented, including how often it can go up, how much notice must be provided before its increased and how much it can be increased by each time. Most locations require tenancy agreements to include specific detail about rent increases, such as frequency, and expected percentage of increase that will be made.
There may also be a clause that states no increase can be made within a certain period. If rent increases are an important part of your budget, you should talk to your property manager before commencing a lease and be sure the current level of detail is in the tenancy agreement.
When increasing the rent, there are a few rules a landlord must follow. In a fixed term lease, rent cannot be increased more than once a year – generally speaking. The tenant must be advised in writing that their rent will increase at least 60 days in advance. The letter must state the day the rental increase will commence, how much the rent will increase by and what the new rental amount will be.
In the event that such notice is not provided, a tenant can refuse to pay. They can also dispute an excessive increase in rent if they believe the new amount to be unreasonable. Their justification of this can reference rental properties similar to them locally and they may draw on your history as a not-so-great landlord, if relevant.
If cheap repairs are made, nothing has been upgraded and no maintenance or care applied to the property over a considerable time, the tenant could by rights question the validity of the rent increase.
When deciding to increase rent, it’s important to weigh up the possibilities – incremental increases over the years in line with market rates will mean your tenant is not put into hardship trying to cover excessive rent increases.
Frequently, holding onto a great tenant is worth much more than a few hundred dollars a year in extra rent. You should talk to your property manager in detail about increasing the rent and follow their guidance on the subject. They will be advising their other landlords similarly so this will keep your decisions in line with the market and ensure you’re maintaining a fair and reasonable situation for your tenant.