
PACE OF RENTAL INFLATION SLOWS
The national rental index increased by 0.6% in September, the lowest monthly rise in rents since December 2021, according to CoreLogic.
At the national level, rental growth moved through a peak in May 2022 with a 1.0% rise; since that time, the monthly pace of rental growth has been easing. This trend in rents is evident across most regions, but has been clearest across regional Australia where monthly rental increases have reduced from a peak of 1.4% in January 2021 to just 0.3% in September 2022.
The slowdown in rental growth is a little surprising given rental vacancy rates remain so low and overseas migration is ramping up, although there has been a subtle uptick in vacancy rates across some regions.
“A gradual slowdown in rental growth in the face of such low vacancy rates could be an early sign that renters are reaching an affordability ceiling. Since the onset of COVID, capital city rents have risen 16.5% and regional rents are up 25.1%. It’s likely renters will be progressively seeking rental options across the medium to high density sector, where renting is cheaper, or maximising the number of people in the tenancy in an effort to spread higher rental costs across a larger household,” Mr Lawless said.
Further evidence of a shift of rental demand towards higher density options can be seen in the higher growth rate of unit rents over house rents. Capital city unit rents increased by 3.8% over the September quarter compared with a 2.3% rise in house rents. This trend is broad- based, with every capital city apart from Perth recording a faster rise in unit rents than house rents.
“A material rise in rental supply seems a long way off, considering private sector investment activity is trending lower and a larger than normal portion of for sale listings are investor-owned properties.”
As rents continue to rise and dwelling values generally trend lower, gross rental yields remain on a rapid upwards trajectory. Capital city gross yields (3.36%) are now at the highest level since January 2021 after rising 40 basis points from the February 2022 record low. This was largely led by a 55 basis point rise in unit yields, while house yields rose by 23 basis points. Despite rising by a smaller 24 basis points, regional yields are substantially higher than gross yields across the combined capitals at 4.3% and 3.4% respectively.
Could the bottom of this market cycle be near?
Frankly, it may have already passed. While it’s too early to say, the busy spring season has arrived and auction clearance rates have remained solid despite the
increased volume of listings. In fact, clearance rates have been on an upward trajectory since July. When it comes to prices, since they started dropping in April, September produced the smallest declines. When October’s results are in, we may see evidence of reversal in many markets.
Official interest rates are expected to continue to rise but remain historically low, and First National’s agents have seen a 10.4% surge in first home buyers at open homes. Knowing first home buyers have an almost innate sense for opportunity, this would certainly suggest they’re keen to get in before prices start rising again.
Where next with official interest rates?
The most important factor influencing housing markets will be the trajectory of interest rates, which remains highly uncertain.
The cash rate has lifted 225 basis points higher through the tightening cycle to-date; interest rates have not risen at this fast a pace since 1994, when households were arguably less sensitive to a sharp rise in the cost of debt.
SHOULD I BUY OFF THE PLAN?
The idea of being able to buy a property before it has been built comes with a raft of advantages and disadvantages.
It’s hard to overlook the fact that you’re buying something that doesn’t even exist yet. But the financial advantages to buying off the plan can be undeniable - you can put your deposit down now and not have to pay the balance until the property is built. This gives you a chunk of time to earn capital gains, while the development is being completed. If the market is rising, your purchase can be worth more than the price paid by the time construction is complete and settlement day arrives. You may be able to realise a substantial capital gain, just days after settlement, having only invested your deposit. If the market falls however your losses can be huge when it comes time to sell.
It’s certainly a risk to commit to something you can’t be sure will meet your expectations. Personal values and taste will come into your decision too, with many people not wanting a ‘2nd hand home’, while others baulk at the lack of character and personality in modern developments. But in an increasingly affluent world, the lust for a higher end lifestyle is real. Are you driven by the desire for a push button life with all the modern conveniences like secure parking and in-house gyms at your fingertips? Will your off the plan choice result in an exquisite attention to every detail, or a poor-quality result, banged together in pursuit of quick bucks for the developer? It’s crucial that you do your research and understand your true motivations to buy off the plan.
WHAT DOES LA NIÑA MEAN FOR LANDLORDS & TENANTS?
Our yearnings for long hot Australian summers are becoming a thing of the past, with La Niña’s annual visits becoming a frequent occurrence.
For landlords and tenants, the unseasonal wet weather and humidity requires sharper attention to detail and a clearer understanding of individual responsibilities.
Mould in particular can proliferate under La Niña’s spell, impacting on a landlord’s investment as well as the health of tenants, if left unchecked. Mould grows indoors in wet or damp areas lacking adequate ventilation and light. In conditions of increased rainfall or humidity, mould growth accelerates and will spread rapidly as long as the viable conditions exist.
So, what do landlords and tenants need to know about their responsibilities?
Landlords have a responsibility to ensure a property meets health and safety laws. They also must provide adequate ventilation as a minimum requirement for a property to be fit for habitation.
Tenants are responsible for notifying the landlord or agent at the first signs of mould or damp in the property. Identifying it early on is the key to preventing much bigger problems later on, and the inability to do so can also determine liability further down the track.
Responsibility for mould related issues will depend on how it developed in the first place, where it’s located, and what was done by whom once it was discovered. Mould that is found in a location that has inadequate ventilation available, or on a fitting or fixture that was defective will lie in the landlord’s hands.
Mould that develops quite soon after a tenancy begins will usually be considered pre-existing and also be up to the landlord to resolve. However, where tenants are not using the supplied ventilation – such as bathroom fans or windows in rooms prone to damp – the resolution of the mould problem will be with them.
Mould has been associated with respiratory illness and can cause serious health problems.
If the mould is causing a danger to the health of tenants or other occupants, then this may be considered an urgent repair.
When the condition report is completed at the start of the tenancy, close attention should be paid by both parties to the section on mould, and a thorough inspection for any trace of mould is advised. The inclusion of mould on the condition report should not dissuade landlords or tenants from their responsibilities of keeping the property in a reasonable state of repair. Local councils or public health units can provide advice around the prevalence and health risks of mould in your area.
Communication is key
First National Real Estate has led the real estate industry, conducting dozens of media interviews nationally to alert tenants to the impending issues we anticipate will occur as a result of another summer of La Niña weather conditions.
Part of our message is that communication is key. We’re encouraging tenants to let our property managers know the moment that mould seems to become a persistent problem, so we can respond before it becomes a health issue.
Equally, early advice to us enables us to establish is a more serious structural problem is affecting your property. If left unchecked, this sort of issue can lead to expensive damage that is the landlord’s responsibility to pay for.
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