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Demand for apartments and student accom plummets, suburbs overwhelmed with returning expats and tree-changers, and investment properties sell to more owner-occupiers.
Early results from Console’s State of the Australian Rental Market report are flowing in, and some key themes around vacancy rates, market changes and sector growth are emerging. In particular, despite the effects of eviction moratoriums and restrictions on movements in Australia in the last twelve months, demand for properties in suburban and regional areas is skyrocketing.
Apartments, inner city accommodation, and student housing aren’t seeing any of this boom, however. It comes as the economy begins to reshape itself with more permanent work from home options for some staff, enabling many who needed to commute into city neighbourhoods for work previously to move further out into the suburbs and regions.
Despite this, agencies reaping the benefits of ultra-low vacancy rates and high rental yields are still struggling to grow their rent roll.
Vacancies at all-time low, except for apartments
Almost 67% of agencies surveyed reported that the market in their suburb or region was doing very well. When asked to explain their answers, however, most of these respondents pointed to incredibly low vacancy rates and more tenants than properties, leading to higher rental yield and letting fees—but almost no portfolio growth.
Factors driving these results mention expats returning to Australia and purchasing or renting, high investment property sales to owner-occupiers, and a lack of new investment properties flowing into the rental market—putting pressure on the number of properties available as a whole.
In a tight market such as this, property management businesses are in an excellent position to ask for higher commissions and higher rents. This may also help them avoid the struggles of a slowing rate of investment properties coming to market
Challenges faced by agencies
As highlighted above, a significant number of agencies reported on lack of rent roll growth—44% of all responses collected to date named it as an issue. On top of that, nearly 30% of agencies are stuck with high maintenance owners and tenants who take a disproportionate amount of time to manage.
Although only 18% of respondents cited market saturation as an issue, it seems likely that it’s affecting a much larger percentage of agencies—in particular, those with slow rent roll growth but minimal vacancies and high rent yield. With a higher than average number of investment properties being sold to owner-occupiers, it’s possible that the rental market in many areas is actually shrinking, leaving fewer properties to go around.
Challenges faced by owners
While a high number of owners are trying to sell their investment property/ies (32%), it doesn’t appear that they are all in the financial trouble that most fear. House prices in all capital cities rose by an average of 3% in the last financial quarter alone. A slightly higher number of agencies (33%) reported that owners were on average not facing financial difficulties or hardship, or any other challenges.
That said, 22% of agencies report having an owner or owners whose financial situation had worsened since the pandemic began, which, coupled with record high tenant arrears in 2020, has not helped them recover as quickly.
Interestingly, a significant number of responses mention a lack of education or understanding of what’s involved in being an owner as an issue or challenge (33%). This makes it an equal first with ‘no challenges’ for most frequently mentioned responses.
Challenges faced by tenants
On the other side of the fence, tenants face a number of big challenges. The top number of mentions include: low numbers of available properties (74% of mentions), owners selling their rentals (56%), increased cost of rental properties in their area (48%) low or precarious incomes (20%), a low number of safe, clean and quiet properties available for rent (16%) and struggling to save for a mortgage under all of these conditions (15% of mentions).
When asked about how tenants’ challenges might be dealt with, respondents’ answers varied significantly, from reopening borders and freezing rent prices to explaining to tenants that the market has changed against their favour. The jury, it seems, is still out on this one.
Responses to the State of the Australian Rental Market survey close on March 31
If you’d like to participate in the survey, you can do so via this link. The State of the Australian Rental Market Report will be published and available from Console’s website in late April, 2021.
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