By Rich Harvey
Over the past four or so years, there have been plenty of reasons for property investors to delay their decision to buy or to make steps to get out of the game entirely.
First came the Covid pandemic and a hellish period of uncertainty, collapsing rental demand, temporary but onerous government restrictions on tenancies, and financial pressure.
Then came a seemingly endless barrage of tax hikes, new fees and charges, and deeply cutting legislative reforms from just about every state across the country. As well as treating landlords like cash cows, these changes made it even less attractive to hold a real estate investment.
Then there was the Reserve Bank’s punishing and historic run of rapid interest rate rises, which added thousands of dollars to the cost of maintaining a rental property.
Activity among investors has been well down for years now. We’re now seeing the fruits of that dramatic lack of activity in the form of a rental crisis.
There are signs that mass exodus is beginning to turn around, and for good reason too.
The current state of the market
The latest Australian Bureau of Statistics data shows a two per cent lift in investor lending in the month of September, compared to August, and a 2.6 per cent lift year-on-year.
That sounds modest, but it marks a shift all the same, and there are hopes that the $8.95 billion worth of loans written to landlords in the month is just the start of more to come.
When you look at what’s happening on the ground, it’s not too surprising that the ears of investors are being pricked at present.
Right now, the rental vacancy rate – that is, the proportion of all leased dwellings current available on the market – is sitting at just one per cent nationally. It’s bad in Sydney and Melbourne (1.2 per cent each) but particularly dire in Brisbane (0.9 per cent), Perth (0.4 per cent), and Adelaide (0.4 per cent).
Economists say that a vacancy rate of three per cent or less is a sign of a market in distress, so we’re well beyond that point.
Put simply, there’s nowhere near enough supply to meet the incredibly high demand for rental properties, and tenants are feeling the pressure. Prices have skyrocketed as a result.
Across the combined capital cities, asking rents have surged by 15.5 per cent over the past year, with minimal difference between the annual increase for houses (15 per cent) and units (15.9 per cent).
Sydney now has the most expensive rental dwellings in the country, with a median weekly house price of $1012 and a weekly unit price of $679. In Melbourne, the median house rent is $702 per week and the median unit rent is $520.
In Brisbane, the median house rent is $706 per week and the median unit rent is $547. In Adelaide, the median house rent is $602 per week and the median unit rent is $437 per week.
The market downturn seen at the start of the Covid pandemic didn’t last long and prices bottomed out in July 2020. Since then, rents have surged nationally by a whopping 30.4 per cent.
It’s true that even that kind of extraordinary rent growth doesn’t make up for 13 interest rate rises, which have taken the official cash rate from 0.1 per cent to 4.35 per cent in just the space of a year-and-a-half.
But it’s certainly helping shoulder the cost – and the outlook is for rents to continue rising well into the New Year.
SQM Research put out new forecasts this month, tipping another increase in rents at a national level of 10 to 15 per cent. In cities where the rental landscape is particularly challenged, steeper growth is expected.
All of this has investors considering making a move. For the first time in a long time, there’s a greater level of market certainty.
It seems landlords from all parts of the world agree. Foreign activity is on the rise, with data from realestate.cm.au showing a surge in searches from those outside Australia. The falling Aussie dollar, our rental markets robustness, and localised issues like steep stamp duty hikes in Singapore and Hong Kong make our bricks and mortar increasingly attractive to those abroad.
Reasons to be optimistic
There’s not going to be a drop in demand for rental properties any time soon.
For starters, there are few – if any – signs that a dramatic increase in supply is coming. The construction sector has been hammered in recent years by finance issues, supply chain hassles, huge cost increases and a skills shortage. There’ll be a huge shortfall in the number of new homes required each year, for many years to come.
And it would take an unprecedented and simply impossible flooding into the market of investors to help ease the pressure on supply.
At the same time, we’re in the midst of a population boom, thanks in large part to a record number of new arrivals from overseas.
Minus the number of people leaving, the country’s population grew by 454,000 people in 2022 thanks mostly to new arrivals, which is about 182,000 additional households.
The data isn’t overly timely but based on last year’s figure and assuming existing projections outlined by the government ring true, we could wind up with another 600,000 people in 2023.
They all need somewhere to live, and history shows that the vast majority rent a home when they get here, before a huge chunk of them eventually purchase and settle down after a few years. So, that’s hundreds of thousands of new households needing a roof over their head.
It’s not just rental markets running hot. Home prices are continuing to rise, meaning that the prospect of locking in good capital growth quickly is on offer.
The latest CoreLogic Home Value Index shows national dwelling prices have jumped 5.6 per cent in the past year. Some cities are performing particularly well, like Sydney (nine per cent), Brisbane (7.8 per cent), Adelaide (6.5 per cent), and Perth (10.8 per cent).
Each of the major banks’ economists and the main property economics houses have released their forecasts for 2024, showing continued steady growth throughout the year in much of the country.
In more good news, most economists believe the latest era of interest rate rises is coming to an end. If the Reserve Bank hikes again in December, it might be the last increase we see for a while.
A growing cohort of financial experts believe that rates will then remain on hold, before beginning to come down again towards the back end of next year.
And while many governments are milking investors for cash, it seems they’re unwilling to adopt overly radical policies that have been bandied about by the likes of the Greens. Things like lengthy rent freezes are simply not on the agenda, governments are eager to insist.
Act with information, not fear
Any sound investment decision is one that’s guided by knowledge, research and experience. Cool heads should prevail, no matter what’s happening around you. I’m personally always on the lookout for my next property investment purchase – particularly when the herd is looking the other way.
There are plenty of reasons to be optimistic, yet the voices most people listen to are the ones preaching doom and gloom. But just remember – they were singing that same old song just before Covid, predicting a housing market crash of 30 per cent of more. Prices went up by much more than that in the end.
Enlisting the help of our expert team at Propertybuyer to navigate you through all of the noise and find the best opportunities for your strategy and budget will keep you ahead of the pack.
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