API Blog :: Have your say!

Unfortunately this year will not bring good tidings for the thousands of Australian tenants trapped on the rental roundabout.

BY MICHAEL YARDNEY

Rising interest rates and the ever increasing cost of living are making it virtually impossible to penetrate the housing affordability barrier for would-be first homebuyers who face a double dilemma: the difficult task of trying to save a deposit while paying for groceries, utilities and the weekly rent; and the increasing cost of home ownership.

And things are set to get worse with already low vacancy rates set to remain tight throughout 2011.

Latest figures from SQM Research reveal that national vacancy rates for December last year were sitting at 2.2 per cent – a slight increase on the two per cent recorded for the same time in 2009. Of all the capital cities, Melbourne tenants are seemingly in the best position, with the December vacancy rate at 3.6 per cent, while Canberra had the tightest market at only 0.9 per cent. Hobart, Adelaide, Perth and Sydney vacancy rates all came in under two per cent, at 1.3 per cent, 1.4 per cent, 1.5 per cent and 1.7 per cent respectively and Brisbane and Darwin both recorded vacancies at 2.8 per cent.

Head of SQM Research Louis Christopher says that although the Sydney and Perth markets have experienced a slight easing in vacancy rates from those recorded for 2009, this is most likely a short term reprieve. He predicts things will get tougher for tenants in most capital cities during 2011, as the number of rentals remaining vacant for three weeks or more decreases.

The only city which will perhaps prove more tenant friendly in terms of available properties is Melbourne, where a glut of new apartment stock began hitting the market late last year and more developments are expected to come online over the next 12 months.

As a result, Christopher says it’s unlikely rents will rise by much more than one to two per cent – if at all – in the Victorian capital, where vacancies are already over three per cent.

"Between three to four per cent, it’s a market in equilibrium. At over four per cent it starts to become an oversupplied market," he says. While this is good news for tenants, Melbourne landlords will not be so happy about the city’s current saturation of rental stock and Christopher’s forecast of minimal or zero rental increases over the next 12 months. Of course this situation will turn around as demand for accommodation continues to rise in Australia’s ‘most livable city’ and the current apartment oversupply is absorbed. Nationally, Christopher says rents could rise by three to five per cent for 2011, while Sydney tenants could be hit with a minimum increase of five per cent, with rents potentially soaring by as much as nine per cent.

Christopher says a lot of tenants are now seeking more affordable accommodation in the outer suburbs of our capital cities.

"Since we do have a bit of an affordability problem … many would-be first homebuyers are renting out an affordable location first so they can save, so they’re moving out to the outer ring to rent," he says.

There’s no doubt that many potential first homebuyers will be waiting to see what happens with interest rates as we progress through 2011 before jumping into the property market. And while this will continue to make competition for rental properties tougher on tenants, it does spell good news for investors, who can look forward to increasing yields.

At this stage of the property cycle, when capital growth is slower, rising rents will in turn boost total investment returns and make life easier for property investors who are facing increasing monthly mortgage repayments. The key is to make sure your property management team is proactive when it comes to reviewing rises in your local rental market that you can benefit from.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. Subscribe to his e-magazine at www.propertyupdate.com.au. For more information about Michael visit www.metropole.com.au.