Decision time for landlords as rental conditions weaken

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Australia’s rental markets look set to continue to tilt in favour of tenants, with conditions weakening in blue-chip and crowded inner city suburbs across Australia.

Recent analysis from CoreLogic RP Data revealed that in the year to April, house rents across Australia’s capital cities fell by 0.5% while unit rents grew at a record slow rate of 1.2%.

CoreLogic research analyst Cameron Kusher said a combination of substantial new housing supply, slowing population growth, weak wages growth and recently heightened level of purchasing by investors had contributed to the weak rental environment.

For the house market, the impact was most felt in premium suburbs, with areas like Sydney’s Tamarama (-40%), Melbourne’s Parkville (-21%), Adelaide’s Gilberton (-30.1%) and Perth’s Peppermint Grove (-33.3%) seeing significant falls in rental rates over the year.

“Whether this is due to fewer executive rents as population growth slows or previous renters taking advantage of record-low interest rates to borrow to purchase is unknown,” Kusher said.

“What is clear is that demand for rental houses is easing and in a number of suburbs rental prices have fallen dramatically,” he said.

For the unit market, Kusher said the continual flow of new stock will continue to affect rents, with their being a distinct possibility of widespread rental falls in the coming years.

“There are signs of weakening growth in many inner-city unit markets,” he said.

“With more rental supply set to enter the market over the coming years we expect that in order to keep tenants, landlords may have to reduce their rents.”

Patick Bright, director of buyer’s agency and property management firm EPS, said landlords who have bought lower quality stock in recent years could soon feel the effect of the weakening market.

“My view is that roughly 20% or 30% of any suburb is what would be considered the quality part of the market,” Bright said.

“Over the last couple of years in Sydney we’ve had more demand than supply and that’s made even the below average properties look good because vacancy rates have been low and rents have been pretty strong,” he said.

“But let’s assume vacancies get closer to 3% rather than 1% as all the new stock comes on, then those properties aren’t going to look as good and tenants are going to start looking around and landlords will be left with the decision to either reduce their rents or try something else to keep a tenant.”

Leah Calnan, director of Melbourne based Metro Property Management, said that decreases in rents aren’t guaranteed for all locations; however she did say that many landlords may have to bite the bullet and lower their asking rent.

“The days are gone of people just renting something because they have to. Prospective tenants are very selective and know what they want and owners need to be aware of that,” Calnan said.

“You just have to adjust in accordance to what’s going on. There’s always been that expectation I think from investors that rents will continue to increase. But when you’ve got low interest rates you have to appreciate that it gives people the opportunity to be purchasing,” she said.

“Sometimes people need to realise you’re better off to take a reduction or $10 or $15 per week if you’re finding that your property isn’t maintaining a level of interest in the first two weeks or so that it goes to market.”
For those landlords who aren’t willing to drop their rents, Calnan said it may be time to look at improving what they’re offering tenants.

“It always just comes down to knowing what you’re competing against. I say to owners quite regularly even if your property is only five years old you need to make sure you’re doing what you can to keep it fresh and attractive.

“That might be a coat of paint of or making sure the lawns are mowed or the garden is tidy, those minor things can really help.”

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