SWIFT RISE IN RENTS FUELLED BY SUPPLY CRISIS
While housing value growth has slowed, rents continue to rise swiftly. Nationally, CoreLogic’s Hedonic Rental Index increased 1.0% in May, taking the quarterly rate of growth to 3.0%, up 60 basis points on a year ago.
The annual change in rents is now tracking at 8.8% across the combined capital cities and 10.8% across the combined regions.
Unit rents now rising faster than houses
Unit rents are rising at a faster annual pace than house rents across the combined capital cities (where house rents increased 8.6% compared to 9.1% across units) and the combined regional areas (where house rents rose 10.7%, behind the 11.0% gain in units).
“Early in the pandemic rental demand for medium to high density dwellings fell sharply due to a preference shift towards larger homes and a demand shock from closed international borders,” CoreLogic’s Research Director, Tim Lawless said.
“As rental affordability pressures mount, demand for higher density rentals has steadily grown due to the unit sectors’ relative affordability advantage. More recently, demand has been boosted by international arrivals returning to the rental market.”
Yields rise in Sydney & Melbourne
Amidst rising rents and a general easing in home value growth, yields are recording some upwards momentum, especially in Sydney and Melbourne.
Sydney gross rental yields are up from a record low of 2.42% in December last year to 2.59%, while Melbourne yields have increased from a record low of 2.74% in December to 2.86%.
“Despite the upwards trajectory, yields remain remarkably low in both cities, but a recovery back to average levels may be relatively quick if housing values continue to fall while rents maintain this growth trajectory,” said Mr Lawless.
Market outlook
As interest rates normalise over the next 12 to 18 months, the expectation is most of Australia’s capital cities will move into a period of decline brought about by less demand.
Mr Lawless said the trajectory of interest rates will be a key factor in future housing market outcomes. Forecasts for where the cash rate may land are varied. After the Reserve Bank’s decision to lift the cash rate by 25 basis points at its May board meeting, the RBA noted: “it's not unreasonable to expect that interest rates would get back to 2.5%.”
Financial markets are still betting on a cash rate above 3% before mid-2023, while economic commentators show a broad range in their cash rate forecasts.
With the housing debt to household income ratio at record highs, household balance sheets are likely to be more sensitive to rising interest rates.
3 TIPS FOR BETTER YIELDS WHEN RENOVATING
Property owners often get cold feet when it comes renovations. The value in investing in improvements is difficult to measure and organising the work can be daunting. However, there are a number of effective improvements that can be made, with little effort and at minimal cost. Don’t underestimate the value in improving the aesthetic appeal of a property and how that translates into higher rental returns when new tenants are brought in.
A splash of paint
A fresh coat of paint never goes astray but have you considered a bright colour over neutrals? Something cheerful and contemporary can transform a room.
Modern floor coverings
Replacing carpet can be costly and it is also prone to staining and greater wear and tear. Choosing timber or laminate options instead can bring your property forward a few decades and modernise to attract a younger rental market.
Clean and simple blinds
A poorly chosen pattern or colour of fabric can date a property very quickly. Similarly curtains that are not fitted properly or poorly hung can look cheap. Consider some simple slim line blinds instead as a neutral window covering and cost effective, low maintenance solution.
HOW TO MAKE SMALL ROOMS SEEM LARGER
No one wants to feel cramped in their own home, but a small room with the wrong decor can leave people feeling trapped and surrounded.
Small pokey rooms can be a real turn off to prospective tenants, but there are some simple solutions that can be implemented to give the illusion of space and make any room feel bigger that it really is.
Keep it light
Dark colours should always be avoided in small spaces. Common wisdom is that lighter shades reflect light better and should always be used in small spaces – especially where windows and good source of natural light are available. Think off white, cream and sky blue for a lighter feel and avoid darker shades like blacks, browns and dark reds.
Avoid clutter
The more things you put into a room the smaller it will seem. Clutter can make even the largest room feel small and chaotic. This is why it's especially important to keep small spaces clean and organised in order to provide the illusion of space. When furnishing a small space in advance of a tenancy, make sure storage and shelving is fixed to the walls, slimline and in calming neutral colours. Dark and heavy timber furniture will close a space in and draws the eye to the objects rather than the available space the room can offer. This also means avoiding excessive furniture and choosing furniture that is suitably sized for the room it will be placed in.
Make use of storage
If furnishing a property for a tenancy, it’s a good idea to offer versatile solutions and furniture that has dual purposes. Small rooms can only handle so much furniture, so a couch that converts to a sofa bed, or a central ottoman that can serve as a coffee table and a footstool, as well as offering internal storage is a game changer in a small space. Multipurpose tables with drawers are also a great solution – they can function as a desk by day and a dining table by night!
Think vertical
The illusion of space in a small room can be easily created with design choices that draw the eyes upward. Bring in interesting lighting fixtures or add a splash of colour to the ceiling or a section of wall that will draw focus upward and away from encroaching walls.
Bring the outside in
A small room with a window is a real prize. Get a sense of how the light falls in the room through the day from that window and decorate internally in line with this movement of natural light. If there’s a nice view, choose window coverings that frame this elegantly rather than obscure it. Make the windows a focal point and draw attention to the external surroundings.