Matusik Property Insights

Rent: The Musical

Strong rental growth is set to continue and even accelerate – according to some – as the lack of new housing stock will keep investment supply below underlying demand.  This rings true, but with lower interest rates, the first home boost and rising unemployment, the days of double digit rental growth are probably over.  Well, for the next year or two at least.  Over the last five years or so, landlords have had to do little, if anything at all, to generate strong rental growth. 
 
Enter 2009 and things have changed.  It is now much cheaper (for many) to buy a residential property than rent one.  First home buyers enjoy, for the first time in ages, a real price incentive to buy rather than rent.  The first home buyers boost has made it very timely to do so, with most first timers leaving the rental market rather than their parents’ homes; thus freeing up rental accommodation.  Vacancy rates, whilst still tight, are, however, easing as a result.  In some locations where unemployment is high and rising, vacancy rates have almost doubled this year.  We have had to reassess the potential rents, and especially for two-bedroom apartment product, on a couple of proposed apartment projects in recent weeks.  In general, our forward rental estimates have come back by around 5% on last year's figures.
 
The rental market is now more evenly balanced than it was six months ago, and it is likely to slow down the growth in weekly rents.  Supply is still tight enough to ensure that rents do not actually fall in nominal or even real terms, however, increased availability of rental stock gives tenants greater choice and renders them more price sensitive.  Existing landlords need to temper their expectations and new investors need to be somewhat conservative on a likely rental return. 
 
And thanks to HTW for the witty title. >> archive      

1 July 2009