Unlocking rental growth in a post-COVID world
Barely a day goes by without media reports of new research or statistics quantifying price growth or identifying the latest hotspots, but away from all the noise about record sales and housing affordability, the real story for property investors right now is about unlocking rental growth in their portfolio.
Property prices in Australia have been on an upward trajectory for years now and barely a day goes by without media reports of new research or statistics quantifying price growth or identifying the latest hotspots.
But away from all the noise about record sales and housing affordability, the real story for property investors right now is about unlocking rental growth in their portfolio.
The pandemic wreaked havoc on our livelihoods and mental health, but it also stagnated residential rents, with many investment properties currently achieving rents at pre-COVID levels without any increases since 2018/2019.
At Patrick Leo, we have just completed an audit across our national property management portfolio of properties in both major capitals and regional areas to review current rental agreements to market, renew lease contracts and identify opportunities for growth for our landlords.
Interestingly, 24 per cent of tenants chose to renew their lease with a 13 per cent increase in their rental.
The landlords of the tenants who chose to relocate to avoid the rental increase were smiling when their properties were then leased to new tenants, at a 21 per cent increase in rent.
These numbers are significant, particularly for investors with multi-property portfolios.
Overwhelmingly there is plenty of room to increase rents after this protracted period of stagnation.
Rental demand continues unabated despite COVID-19 and the on-going lockdowns – on average we receive 23 applications for every rental property.
In fact, all new homes we have sold in 2019 are currently achieving 125 per cent of the rent that was forecast at the time of sale.
It is a delicate balance juggling the needs of landlords and tenants – particularly trying to retain quality long-term tenants and support those struggling with unemployment and under-employment as a result of the pandemic. For those tenants we work together with them to find more affordable rental accommodation and add value by helping them access discounted utilities to reduce their everyday expenses.
“If you look after the cents, the dollars take care of themselves” is something a landlord said to me that really resonates here.
Property prices will continue to climb over the years and eventually unlock capital gains, but in the meantime, it comes down to brass tacks of rental returns.
Investors should keep an eye on price growth as a key economic indicator, but investment fundamentals remain the same and for the term of the investment – the key to success lies in the effective management of the asset.