UNIT RENTAL GROWTH IS MILDER THAN HOUSES
According to CoreLogic, rents have increased by 9.4% over the 2021 calendar year. Unit rents were up 7.5% over the year compared to the 10.1% lift recorded in house rents.
Rental growth trends across the unit sector have generally been milder than houses, with unit rentals being disproportionately affected by stalled overseas migration as well as domestic rental preferences shifting away from higher-density options through the pandemic.
However, these trends are starting to change as rental affordability diverts demand back towards the unit sector.
‘In Melbourne, where unit rents fell by -8.5% between March 2020 and May 2021, higher density rental markets are now recording a faster rate of growth than houses, with Melbourne unit rents recording a 1.6% quarterly increase compared to the 0.9% rise seen in house rents,’ CoreLogic’s Research Director, Tim Lawless says.
Darwin shows the toughest conditions for tenants
The tightest capital city rental market over the year has been Darwin, where dwelling rents rose 15.2%. Conditions have eased a little over the second half of the year, with annual rental growth moving through a peak of 22.3% over the 12 months ending August.
Although rents have surged across the northernmost capital, Darwin’s rental index remains 7.6% below its 2014 peak; a legacy of the 26.3% decline in rents recorded between March 2014 and December 2019.
Price growth compressing yields
With national housing values recording an annual rise of 22.1% compared with a 9.4% rise in rents, rental yields have decreased as a natural consequence.
Gross rental yields fell to a new record low across Australia, reaching 3.2% in December. The lowest yields, by some margin, remain in Sydney (2.4%) and
Melbourne (2.7%), however, except for Perth and Darwin, every capital city is recording record low yields.
The outlook for 2022
2021 was an unprecedented year for Australian housing markets, but 2022 is likely to see a further easing in the pace of capital gains. The number of home sales reached new record highs against a backdrop of below-average listings and stalled overseas migration. The large majority of housing demand has originated from domestic sources, fueled by record-low mortgage rates and an accumulation of pent-up demand from prior years when housing turnover reached record lows.
As international borders re-open, rental demand is likely to be the main beneficiary, rather than home buying demand, especially across the inner-city rental precincts popular with students and visitors.
Housing values have moved through the fastest rate of annual growth since the late 1980s at a time when wages and household incomes have hardly moved. The juxtaposition of higher housing values against low-income growth has resulted in higher barriers to entry. It is becoming increasingly hard to raise a deposit and fund transactional costs such as stamp duty. It is likely housing affordability challenges will progressively weigh on housing demand over the year ahead.
GROSS RENTAL YIELDS NATIONALLY
Sydney 2.4%
Melbourne 2.7%
Brisbane 3.7%
Adelaide 3.9%
Perth 4.4%
Hobart 3.7%
Darwin 6.1%
Canberra 3.8%
National 3.2%
WHAT DOES PROPERTY MANAGEMENT REALLY COST?
New property owners are often uncertain about how much a property manager costs and, as a result, lean towards doing it themselves to 'save money'.
Managing yourself may reduce some of the financial cost in theory, but few consider the opportunity cost of how much personal time, stress and administration is needed – especially if the learning curve is steep. If you get the right property manager, you’ll have a better chance to get market rental rates and good tenants. This secures a stable rental income that ideally will cover your property management costs!
An arm’s length approach keeps everything professional and allows issues to be managed with objectivity, however, it’s reasonable that the cost involved IS understood before you decide. There are upfront and ongoing costs that come with property management, though many of these would be costs you’d incur anyway – with the extra cost of having to do the work yourself. Initially of course you’ll have to pay for things like advertising and photography for online and print listings of the property. There’s also usually a letting fee and a lease preparation fee that covers the administration of a new tenancy being implemented – these don’t usually get paid until a tenant has been secured. Other upfront costs may be compliance related such as smoke alarms and water supply, as well as some necessary repairs and maintenance to get the property tenant ready. Once that’s all done though, your only outgoings will be the ongoing property management fee, which we’re happy to go through with you in detail before you sign with us.
WHERE DO SELF-MANAGING LANDLORDS GO WRONG?
Renting out your property comes with a range of legal and financial responsibilities so you must be clear on how much work you want to put into being a landlord and what elements of renting out your property might be better outsourced. This essential preliminary research is often overlooked, and novice landlords inevitably make mistakes.
Inadequate selection and screening of potential tenants
To save money on advertising, self-managed landlords will often use their networks to find a tenant for their property. This may be a cousin’s husband’s mate or a friend of a friend from social media. This may seem like a good idea, however, someone your mate says is a great laugh at the pub doesn’t necessarily make a great tenant. This personal connection can also influence landlords into thinking they don’t need to do a background check on their prospective tenants. A verbal reference in a social setting is not the same as a qualified reference from someone who has dealt with that tenant in the same capacity – such as their previous landlord. These kinds of oversights can be disastrous – overlooking information such as why their last tenancy ended (were they evicted?); what their current employment situation is (can pay their rent?); and why they’re currently between residences. A reference check is also important when it comes to unpaid rent or property expenses – without that history, there may be no way of chasing a tenant who’s disappeared.
Neglecting to tick all the boxes
Finding a lease and condition report template online is fine, but is it customised to your property or the specifics of the arrangement with your new tenant? Damage that occurs during their tenancy can only be evidenced by a report that states the condition of the property before they moved in – their word or your word will not stand up. A customised lease and condition report that is signed by everyone and agreed upon as the status quo at the time of the tenancy commencing is your only security when it comes to property damage, maintenance and care.
Insufficient processes around bond and rental income
First and foremost, before a tenant moves in a bond must be secured, so in the event of the tenancy ending, any miscellaneous damages can be dealt with using this bond as collateral. Another hidden loss that self-managed landlords unknowingly implement comes from not accurately calculating rental income. A full calendar year is not evenly distributed across 12 months exactly so monthly rent should be calculated annually as a calendar month amount rather than simply billed as a monthly amount. Landlords that keep effective rental records will learn this quickly enough – while those who don’t follow accurate record-keeping procedures will usually find out far too late about all the income they’ve missed out on.