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October blowout predicted for Perth rentals

08 July 2020 Grace Ormsby
Perth

In good news for Perth investors, experts are predicting a “major blowout” for rent prices in the capital city once the ban on rental increases lifts in October.

Property Club Western Australia branch manager Troy Gunasekera is subsequently advising tenants in the city to seriously consider locking in their rents for a fixed period of time if their lease is set to expire before the end of 2020.

The ban on rental price increases for established tenancies was implemented earlier this year as part of a “nationwide moratorium” in response to the COVID-19 pandemic.

According to Mr Gunasekera, the number of vacant rental properties in Perth has already fallen below 4,000 – “the lowest number in several years”.

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“The ban on rental increases during COVID-19 will result in a pressure cooker environment for a blowout in residential rents later this year,” he has forecast.

“Overall, the median weekly rent in Perth has been stuck at around $350 for a long period of time even though the rental vacancy rate has dropped dramatically over the past two years to below 3 per cent and continues to shrink.”

Mr Gunasekera expressed that “rents at this level moving forward are clearly unsustainable”.

He outlined that Property Club is already seeing properties that have become vacant over the last month being leased to new tenants with rent increases of at least 10 per cent.

“Landlords with existing tenants are being forced to suppress rental increases during COVID-19 even though the demand for rental properties is outstripping demand in a growing number of Perth suburbs,” he commented.

During June 2020 alone, the number of vacant rental properties in Perth fell by 15 per cent.

Overall, the total number of vacant properties in the city has dropped by nearly half in the last 12 months.

“That has meant that the median Perth rent is being kept artificially low due to government interference in the rental market,” the branch manager considered.

He said that the low number of vacant rental properties in Perth is “largely due to a massive reduction in property investor activity in the city due to government and banking policies that are actively discouraging property investment”.

He pointed to Property Club research that showed the total value of property investor loans in Western Australia stood at $168.3 million in April 2020.

This is the lowest level seen since 2002, having plummeted since the June 2014 highs of $1,068.6 million.

“This is because APRA and the banks have heavily restricted lending to investors from 2015 with higher punitive interest rates, limiting the time period for interest-only loans and imposed refinancing serviceability requirements that are totally unworkable,” Mr Gunasekera said.

He argued that without substantive policy changes in the near future, “lending to investors in Western Australia will continue to dwindle to a trickle”.

“This will lead to a blowout in Perth rents once the COVID-19 emergency period ends and market forces come into play,” he warned.

October blowout predicted for Perth rentals
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