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The rental market as a barometer for property value growth

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Barely a week goes by lately without a dramatic headline about the ‘disastrous’ Australian property market. Headlines like “Australia suffering its greatest decline since….”, or “Australia’s housing downturn continues …” and “Aussie property market in freefall prompting buyers to …”. The drama and pessimism continues, sending buyers and homeowners into a tailspin. Of course there is reason for caution, but any self-respecting buyer knows that this is par for the course with property investing. For every boom there must be adjustment cycle and when the market has peaked, how do you know what your next move should be?


There is a savvy way for buyers to keep track of what might be coming next in the property market. It’s a way to avoid making rash emotional decisions but rather make informed choices about what to do next. A little known fact amongst Australian investors is that patterns in residential rental figures can be strong indicators of what’s about to come, with regard to property prices. In simple terms – rent goes up before property prices rise. In addition, vacancy rates will drop, making a solid case for property owners to ignore the doom and gloom and focus attention instead on activity in the rental market.

State by state, the patterns of behaviour further endorse this point. Just 2 years ago, growth in the Sydney property market was being recorded as the fastest in a decade. Just before that claim could be officially made, rental growth had been quietly forging ahead for a good couple of years. Strong growth in Sydney rents was a clear indicator of what was to come, but few buyers would have known this – a crying shame considering the potential for missed opportunity that lies within. Now that market is a shadow of its former self.

 

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As we launch into 2019, the property market is being described as experiencing the weakest conditions in more than 10 years, yet the tide is turning where rentals are concerned. Patterns around vacancies and rent increases in Canberra, Hobart and Adelaide show promise for investors, with Perth also gaining traction for expected rental growth. So if rises in rental growth and strengthening residential rentals are a sign of things to come, what can be expected from state to state?

Hobart, Canberra, Adelaide and Perth all show promise, with various factors at play. Despite the downturn, Hobart’s property market is currently leading the pack in terms of price growth, and if we delve back, there was also significant growth in the rental market before prices started to increase. Apartment rental growth has ranged from 9 to 14 per cent (according to different sources), while some experts claim just a 5 percent rise in housing rental prices, as others put the growth at more like 11 per cent.

Canberra is following Hobart’s lead on this, with rental increases in apartments showing between 5 – 7 per cent growth and houses between 8 and 9 per cent. Both cities have also sustained a couple of years of impressively low vacancy rates – both well under 1 per cent. As is the case with Hobart, Canberra also has a solid foundation to work from with a strong local economy and decent, sustained price growth.

While Hobart and Canberra volley for top ranking in terms of rental market growth, Adelaide and Perth are also making steady progress as contenders. Adelaide has also been a member of the 1 per cent club and comes in at third place for national rental performance. Rental growth has been solid with various sources quoting 3 to 4.2 per cent rises for housing rentals and 2 to 3.5 per cent for apartments. These figures may seem less than impressive, but when compared to the negative figures in other Australian capitals, Adelaide investors have little to be concerned about. The city’s continued low vacancy rate, combined with steadily improving rental growth and a promising local economy, and sales market, indicate that further growth is ahead for the city of churches. In addition, Perth is steady with an encouraging lack of growth or decline, though a steady increase in rents is expected as vacancy rates begin to trend downwards and are expected to further tighten in the coming year.

Across the other states, shared experiences of stagnant rents and declining rental occupation levels prove useless as a barometer of price growth. Darwin and Brisbane have both experienced high vacancy rates in recent years, stalling any possibility for rental increases. Brisbane is showing somewhat of a trend for improvement, while Darwin continues to battle on, with rents down between 4 and 6 per cent. Despite them receiving top billing in almost every property market feature ever, in this case, there is little to be said about Sydney and Melbourne. There have been suggestions of rises in the last year or so, but Sydney was the only city last year to record a fall in rental prices in the 2018 financial year, a result of almost 3 per cent of properties sitting unoccupied.

So if you’re currently in two minds about what to do next and can’t bear one more article predicting property doomsday, maybe it’s time to shift focus and see what other opportunities may lie ahead. Property growth predictions don’t have to come from just one set of figures and keeping an eye on the rental market gives you insight. Not only do your investment options widen, but your choices with regard to selling up and renting do too. This could be your moment, to realise your investment property dreams by capitalising on what’s happening in locations that appear to be Australia’s quiet achievers – Adelaide, Hobart, Canberra, and Perth.

Download Home Buyers Guide

Read more:

How Millennials can win the rentals race against Baby Boomers

How to increase the rental value of your investment property

 

DISCLAIMER
The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions. Click here for full Terms of Use.



Tags: Investing, Selling, Renting

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