While a lot of the discussion about the property market is focused on potential price drops and rising interest rates, the most important information for investors at the moment relates to vacancy rates and rents.
Rising rents mean most investors are well placed to cover any additional costs as a result of higher interest rates, because the rate of rental increases in the past 12 months has been exceptional.
This – coupled with the fact that most borrowers are well ahead on their repayments following years of low interest rates – means most investors will not struggle to service their mortgages.
Rents have been on the rise for the past few years but in particular in the past 12 months, across both the house and apartment markets, in capital cities and in regional centres.
New figures from SQM research show Brisbane house rents increased by 21% in the financial year just ended.
During the same period, Sydney house rents increased by almost 21% and Adelaide was up by 17.5% – while the overall capital city average increase was 16% for houses and 15% for apartments.
In some capital cities, apartment rents have been growing faster than house rents, according to the SQM Research figures.
This is particularly the case in Melbourne where house rents increased 9% ,while apartments were more than double that, with an increase of 19%.
Canberra followed a similar trend with its house rents up 8% and apartment rents up by 13%.
These latest figures from SQM Research – and backed up by rental data from other sources like Domain – suggest that there has been a substantial increase in rents in most locations, both in capital cities and in regional areas.
But the rental growth is much higher in specific locations.
Inner-city apartments across Melbourne and Sydney have had the biggest rental gains, with West Melbourne, Docklands and Southbank rising by more than 30%.
That’s according to CoreLogic figures.
In Sydney, median rents for apartments in Ultimo, Zetland and Haymarket also rose sharply, jumping by between 17% and 20%.
So, what’s driving these big rental increases? It’s all about supply, or lack of it.
Vacancy rates in every capital city are below 2% and in six of the eight capital cities vacancy rates are well below 1% – which is extremely tight.
To put that in perspective, 3% is considered a balanced rental market.
Anything below 2% is a shortage – and under 1% is a crisis.
At the same time that rents are rising, we hear from CoreLogic that prices are starting to fall in some areas, notably in Sydney and Melbourne.
This makes things even more attractive for investors particularly those buying with a long-term view.
Investors can buy at softer prices – in some locations – with higher rents which allows them to achieve better rental yields.
So, this is the basic equation – in some locations price growth is coming to a halt but in those same places we are seeing really big increases in rents.
That’s good news for investors who are achieving a better income from their properties, at a time when interest rates are rising.
So the rental growth has the potential to compensate for the higher interest rates.
