John McGrath has the rent verdict for 2013: A recent Rental Report from Australian Property Monitors paints a very positive picture for landlords and aspiring investors, particularly in Sydney, Darwin and Perth.
Let’s start with Sydney, where the median rent for a house has hit a new all-time high of $520 per week after a 4% jump in the September quarter alone. That’s a big increase – if we had 4% growth every quarter rents would be up 16% by the end of the year, so you see what I mean about 4% being a rapid pace of growth.
Darwin remains the stand-out, with house rents up 7.7% to $700 per week and apartment rents up 10.4% to $530. It’s the most expensive rental market in the country by a long shot, with Australian Property Monitors Senior Economist, Dr Andrew Wilson, putting this down to the transient nature of the workforce and an underlying shortage of available housing.
The other top performing market for rents is Perth, which continues to benefit from the mining boom and greater immigration. House rents jumped 4.7% to $450 in September, and they’re up by a stunning 15.4% year-on-year. The rental price on Perth apartments rose 2.6% to $390 in September, up 11.4% year-on-year.
With rents this strong, it’s no wonder investors are active. In fact, in NSW they make up 40% of the market and in WA they represent almost 30%, according to AFG mortgage brokers.
If you’re thinking of investing in property, I say get out there now. We’re in one of the best environments for property investment that we’ve seen in several years. Property prices are showing signs of improvement, home loan interest rates are falling and rents are rising strongly.
With investors able to borrow at 5.39% or thereabouts on a fixed deal, the potential to purchase a positive or neutral cash flow property is far greater than usual – especially if you’re buying in regional centres which typically have higher rents than capital cities.
I’ve been doing this for 30 years and I can tell you that investors are typically very active before a market turns. While owner-occupiers are always in the market, investors only jump back in when conditions are right. They’ll often sit still in softening conditions and come back when things are improving and that’s what’s happening now. When we see strong investor competition on top of owner-occupier demand, we eventually reach a tipping point where prices begin a new northward march. We’re on track for this now.
Now back to rents. While rising rents are great news for landlords, the flipside is the impact on tenants. When rents get too high, we start to see a jump in first home buyer activity. Many experts will argue that Sydney isn’t affordable for first home buyers but I disagree. Sure, you might not be able to afford the ideal property in your favoured suburb, but Sydney renters can afford to buy here if they’re willing to compromise a bit.
Google ‘reverse rent calculator’ and punch your numbers in to reveal what you can afford to buy. I used the realestate.com.au calculator, which says if you can pay $520 per week in rent, you can afford a mortgage of just over $400,000 on a 30 year loan at 5.39% (a fixed rate that is available through St George for three years.) Run your numbers and you might be surprised to discover that buying might actually be a better option than renting.
By John McGrath
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