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Upward pressure on rental rates, does that mean investors are flooding back into the market?

By Andrew Macdonald

With the continued increases in interest rates the past couple of months, we’re seeing conversation shift this month to the rental market as vacancy rates plummet and rental prices begin to climb across Sydney.

Does that mean investors are flooding back into the market?

And how much more will rents rise?

Skyrocketing rental prices and a lack of availability

It is currently a very stressful time for tenants, with rental prices increasing and a lack of availability of rental homes.

Several suburbs in Sydney have experienced large increases in rental costs over the past year. Regional towns are also feeling the impact of increasing rental prices.

The demand for homes has been driven by multiple factors, including a high returning number of people migrating back to Australia from overseas countries and capital cities becoming increasingly attractive for renters to move to.

According to REINSW CEO, Tim McKibbin, the REINSW members said that they’ve never experienced such a lack of supply. In his media release, Tim said:

‘In the face of cost-of living pressures, many tenants would embrace the opportunity to secure a more affordable rental property. However, despite rent increases, they’re choosing to stay put because they’re just not confident that they’ll be able to secure another property’.

Weekly median rents in the Central Coast:

Increase in weekly median rents.

Properties are being leased in record timing

Rental properties in Sydney are being snatched up faster than ever before, as new data reveals the number of days listed on the market hits a historic lowPropTrack data has also shown that the total rental listings in Sydney are now 30 per cent lower than pre-pandemic levels.

With properties being leased in record timing, PropTrack Senior Economist, Eleanor Creagh said that renters may feel pressured as rents rise up 9 per cent nationally compared to 12 months ago.

Weekly rent listings in the Central Coast:

Rental vacancies at a five-year low

The Sydney property market has seen a huge decrease in vacancy rates since the Reserve Bank of Australia (RBA) increased interest rates for four consecutive months.

As rental demand continues to increase, the vacancy rate figures are expected to drop further over time due to economical opinions that there may be some more movement in interest rates as we approach the end of 2022.

Rental vacancies in Sydney and the Central Coast are now at a five-year low, effectively locking many potential tenants out of the market due to the extreme shortage in stock for people looking to enter Greater Sydney’s rental market.

The national residential vacancy rates remain at a record low of around 1 per cent, according to figures from analytics firm, SQM Research. To put this figure into perspective, it’s the second lowest national vacancy rate recorded in more than 17 years of data SQM has on this metric.

Residential vacancy rates in the Central Coast:

Decrease in residential vacancy rates.

Is Australia currently facing a rental crisis?

According to Ray White Chief Economist, Nerida Conisbee:

‘For renters right now with secure leases, we are not seeing a rental crisis. The crisis however is occurring for those that are looking for a rental property right now. With population growth expected to be higher this year than the past two years and problems in the construction industry limiting new development, this rental crisis for those looking for homes looks set to continue‘.

Read the full article below:

Strong performing Coast suburbs

According to the Coast Community News, the quarterly Hood Tenant Report identified the top 20 suburbs where landlords hold a clear balance of power over tenants.

Coast suburbs to feature in the latest report were:

  • North Avoca at number 4,
  • Copacabana at number 8,
  • Erina at number 9,
  • Tascott at number 11, and
  • Lisarow at number 14.

In all the suburbs on the top 20 ranking, rents have increased by at least 22 per cent during the past 12 months.

In most of the suburbs, vacancy rates are under 1 per cent and in some cases 0 per cent, including North Avoca, Copacabana and Lisarow. At Erina the vacancy rate is 0.6 per cent and at Tascott 1.2 per cent.

The report says rents rose by the following amounts in the Coast suburbs between January 2021 and January 2022:

How much more will rent rise?

With inflation expected to peak at 7.75 per cent in December, according to research firm Digital Finance Analytics, it’s still up in the air how much more rents can rise before the market finds an equilibrium. Supply will remain constrained; however, investors will continue to be interested in the market, particularly as rental yields continue to strengthen…

Property Gross Rental Yield in the Central Coast:

Is your tenant paying market rent?

What seems to be happening right now is that tenants with leases already signed are not paying market rents.

Your managing agent should be proactively assessing & updating your rental income both when re-signing leases with existing tenants and when re-letting the property. If you feel your investment property is not achieving its true rental income, talk to one of our team and let us do an income audit review for you and provide you with the necessary insights of your property.

Not happy with your current rental income, but worried that the process of changing agents is too time consuming and not worthwhile for the extra rent? Let our property management team do the whole transfer for you and we assure you that no communication between you and your former agency will be required. We will take care of all communications and all that are needed to ensure an effortless and awkward-less transfer!

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