The Great Australian Rental Boom. 

It’s the rental Boom Australia had to have. As per the story above, a number of factors have come together for the first time in decades.

And perversely, the interest rate rises over the past few years actually helped to kick it off, as did the financial crisis.

FIRST, let’s look at what has happened to rents already.

In June 2005, before the onset of the GFC the rental for a typical 2 bedroom apartment in Melbourne for example was say $400 a week; meaning to hold the property, (with loan interest at $457) on a 70% mortgage was around $57 a week. (We have ignored other costs for the sake of the example, to show mainly the effect the current interest rate and rents are having on an investor, as every investor has a different loan figure and property holding costs etc)

Melbourne rents started to rise towards the end of 2007, as the GFC took hold, with people putting of buying, and choosing to rent instead.

Then tens of thousands of new migrants arrived, and developers cut back on supply, due to problems in getting development funding.

By June 2008 the rental for the same apartment had risen by around 36% to around $544 a week.

Repayments were then $596 a week due to increasing interest rates. That meant the same property still cost the same to hold, even though interest rates had gone up.

This situation gathered momentum right through to 2010.

By January 2010, interest rates had fallen and loans could be obtained at around 5.5%.

So by January 2010, the rent was now $587 and the mortgage interest had dropped to just $397 per week, meaning the exact same property was cash flow positive by $190 a week.

An average wage earner, who took out an average home loan back in July 2002, would have also seen their weekly salary rise by $234 since then, in conjunction with the tax cuts.

With these rents and falling interest rates, combined with the tax advantages available for investors, many new properties became cash flow positive for the first time in decades in Australia.

This caused investors and home buyers to rush into the market, which then pushed prices up in some cities, particularly Melbourne.

The Brisbane and Sydney property markets operate on a different cycle, and the rents have continued to rise without the corresponding increases in prices. In inner suburbs in Brisbane within 7 kms of the city centre, it is now possible to get 5.5% to 6% or higher rent returns on furnished new build property, which is a fantastic rent return, not seen for decades.

WILL RENTS CONTINUE TO RISE?

Investors are eager to know what will happen to rents, or are they too late to lock into our greatest ever rental boom? Occupancy rates in several Australian capitals for residential rental property are now between 97%- 99%.

These high occupancy rates coupled with unprecedented demand and a shortage of housing are likely to continue to fuel growth in weekly rents.

According to data from Australian Property Monitors, a Fairfax Media-owned company, in Sydney, where the rental market remains very tight rents are up 8.8 per cent to $650 for houses in the Botany Bay area, 8.4 per cent to $1000 a week in the Waverley area in the eastern suburbs, and 8.3 per cent to $650 in the Canada Bay area.

Rents expected to increase across all states of Australia throughout the rest of 2011.

The API Rental Price Series Quarterly Report, states that Australian unit rental prices increased by 2.3 per cent during the March quarter, as a result of high demand for rental properties, coupled with low availability in most of the capital cities.

In Sydney, median house rental reflected a healthy increase of 1.0 per cent, while the median rental for units was at apartments a jumped 2.3 per cent.

The apartment’s rental asking prices have outperformed rental pricing for houses in every state over the quarter.

“Renters should prepare for significant growth in rental prices throughout 2011, driven by accelerating economic activity, housing shortages and a slow first homebuyer market,” APM’s senior economist Andrew Wilson said.

Apartments for rent are in short supply across most capital cities in Australia. Being smaller and more affordable than houses, rents have been increasing more than the rental of houses.

There is a general expectation that the rising prices of property rentals will entice potential property investors into the market, particularly if they can get up to 6%.

With AUD loan interest rates now available at 6.44% fixed, and USD/HKD/SGD loans from around 2% to 2.5% a cash flow positive property is now possible.

 3. Australia’s rent returns: amongst the highest in the world

Data for the world’s cities rental returns from Global Property Guide has shown that Sydney sits at the seventh highest in the world at present for gross rental yield. (This is what a landlord can expect as return on his investment before taxes, maintenance fees and other costs.)

The properties they used are 120-sq. m. apartments located in the city centre.

The gross rental returns (or rental yields) figures published by the Global Property Guide are based on the Global Property Guides own proprietary in-house research.

Only resale apartments and houses are researched. Yields for newly-built properties are not included.

Buyers should expect the rental yields of new properties to be lower than the gross rental yields published by the Global Property Guide.

Interestingly, data for Brisbane’s West End shows gross yield for new apartments to be the highest of all the world’s cities, and also had with the lowest per square metre rate to buy.

A similar analysis of Melbourne South Yarra, and Sydney’s Mosman as well as Perth showed yields of these three areas, plus the West End in Brisbane meant Australia commanded 4 of the top 6 places in terms of world rental yields.

 

 
 

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"Apartment hunters face 'mission impossible' in Melbourne" The Melbourne Age 

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THE New South Wales government is calling for calm after reports of a rental crisis in Sydney, leading to incidents of "rental rage" against real estate agents.

 
Housing Minister David Borger said reports only 739 houses were available for rent in Sydney were not cause for landlords to jack up rental prices unreasonably.

People have become so desperate to secure a property that (agents) have been offered bribes and even had prospective tenants break down because they 'cannot compete with the number of people looking for properties'".

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Underlying housing demand wass already outstripping new supply, and the hundreds of project cancellations will make the situation worse, driving pent-up housing demand to record levels.