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Why landlords are jumping for joy

Why landlords are jumping for joy

If you own an investment property, or you’re planning to buy one, now might be the perfect time. The rental market is as tight as we’ve ever seen it, with new listings snapped up quickly by eager tenants.

As a landlord, this environment offers more peace of mind than you’d usually enjoy, since a vacant property can cost you serious money. Two weeks without a tenant at a modest rent of $260 per week is the equivalent of receiving $10 less per week for a whole year.

Here’s how the rental market is looking right now

Demand

Historically, a vacancy rate under 3% is considered a landlord’s market. At that level, landlords can feel reassured that a home in decent condition, asking a fair market price, will find a good tenant fairly easily.

In December 2021, the national vacancy rate was 1.7%. That’s as compared to 2.4% in December 2020. It’s worth noting, too, that December traditionally has the highest number of vacancies of any month. People are more likely to move during the summer holidays so that their children can settle in new schools before the commencement of the year.

The highest demand in a capital city can be found in Hobart, which has posted a vacancy rate of just 0.3% – even tighter than last year’s 0.5%. Adelaide is close behind at 0.4% (down from 0.7%). At the other end of the spectrum are the major capitals. If you’re a tenant, your best chance at finding a vacant rental is in Melbourne, with a 3.2% vacancy rate, or in Sydney at 2.6%. Both Sydney and Melbourne CBD, in particular, has tended to struggle: these areas were the hardest hit by the border closures and resulting drop in international students who would otherwise have made up a large part of the tenant market.

The situation in the regions is even tighter. Vacancy rates on the Gold Coast are sitting at around 0.6%; Castlemaine in Victoria is currently at 0.3%; Serpentine and Jarrahdale in Western Australia are both at 0.2% while the Gawler-Two Wells area north of Adelaide is at an all-time low of 0.1%. These aren’t unusual figures: landlords holding stock across regional Australia are all but guaranteed their pick of tenants.

Price rises

Thanks to the law of supply and demand, the tight market also means that most areas have seen rental prices rise. This is especially true for larger properties, thanks to continuing high demand for family homes.

Nationally, rents have increased by 9.4% to the end of December 2021, the highest growth rate since 2007. Here again, the big price rises are in the regions. In the fourth quarter of 2021, regional dwelling rents rose by 2.5% as against 1.9% in the capital cities. The annual growth in regional rents was 12.1%.

A surge in people moving to regional areas, combined with a lack of new stock in those areas, means that the trend is unlikely to reverse any time soon. New rental listings in December 2021 were lower than at any other time since April 2010, despite continuing demand. As international students, migrants and travellers start to trickle back into the country, that demand is likely to rise.

Rental yields

If you’re planning to buy an investment property, it’s worth being aware that rental yields are also at record lows. That’s thanks to the huge rise in the cost of buying a home, which has surged even more strongly than rents. For example, while rental prices rose 1.9% in the last quarter of 2021, house prices rose 3.9%.

Sydney and Melbourne have the lowest yields, as has been the case for some time, at 2.42% and 2.74% respectively. Darwin rental yields are substantially higher at 6.05% while Perth is a healthy 4.37%.

If you’re planning to buy a property, make sure you’ve run the numbers to ensure that it fits into your budget. A property with negative cash flow may be ideal for your long term investment strategy, but it’s important to understand the difference and get professional advice.

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