Investors could become caught in a race to the bottom as tenants take advantage of the post-boom rental landscape in Sydney and Melbourne.
Buyer’s agent Todd Hunter, from wHeregroup, said investors with older homes will be forced to compete with new house and land packages slightly further from the CBD.
Mr Hunter added that the sheer number of investments in the outer suburbs of Sydney and Melbourne, driven by the strong price gains in each city over the past few years, means that tenants are now spoilt for choice.
Some tenants are now avoiding established homes that are closer to the city in favour of newer homes that are one or two suburbs further out, according to Mr Hunter.
“In these cities like Sydney and Melbourne – which is very generic, we’re talking about two capital cities here, there’s lots of markets within those markets – you’re seeing prices that have increased significantly, you’re seeing lots of new housing stock come onto the market and that all puts pressure on rents,” he said.
Investors in Sydney’s western suburbs are particularly susceptible to this new competition, according to Mr Hunter.
“In that sort of western Sydney [area] you’ve got new land releases, you’ve got investors who are paying an absolute premium for new house and land packages, and then, because so many are coming on the market, they’re realising they can’t get the yields that they were getting, so they reduce the yields,” he said.
Mr Hunter’s comments come as CoreLogic RP Data’s review of the national rental market found that rents increased by just 0.3 per cent in 2015 – a record-low rate of annual growth (based on records back to December 1996).
The only cities to see an increase in weekly rental rates were Sydney with an increase of 1.9 per cent, Melbourne (2.2 per cent), Hobart (0.6 per cent) and Canberra (1.9 per cent), while rates fell in Brisbane by (-0.3 per cent), Adelaide (-0.2 per cent), Perth (-8.0 per cent) and Darwin (-13.3 per cent).
Mr Hunter was speaking to REB’s sister title, Smart Property Investment. Click here to hear the full conversation.