First National Abode Property June 2021 Landlord Update

Monday 07 Jun 2021


CAPITALS WEAK WHILE DARWIN & PERTH SURGE


The trend in rents has remained positive across most regions and housing types, but growth conditions have eased a little over recent months, according to CoreLogic.

Generally, the first quarter of the year is a seasonally strong period for rental markets, so the easing in rental growth is unsurprising. The monthly increase in capital city dwelling rents has eased from an average of 1.0% over the March quarter to 0.6% over the past two months. Similarly, the rate of growth in rents across the combined regional areas of Australia has eased back from an average of 1.4% in the March quarter to 1.0% through April and May.

 

Weakest rental conditions in Sydney & Melbourne

Sydney and Melbourne are still recording the weakest rental conditions, especially across the unit sector where closed international borders have had a more significant impact on tenancy demand. Whilst Sydney house rents are up 2.0% over the past three months and unit rents are 1.8% higher, unit rents remain -7.5% below their 2018 high and are -3.0% lower over the past 12 months. Melbourne rental conditions have been softer, reflecting larger exposure to overseas migrants. House rents are up 0.9% over the past three months while unit rents are down -0.4% remaining -8.5% below their 2019 peak.

 

Darwin and Perth surge

The tightest rental markets remain in Darwin and Perth, where rents have surged on the back of tight supply and rising demand. In Darwin, house rents are up 21.9% over the past 12 months, while unit rents are 17.0% higher.

Perth’s rental market has seen house rents rise by 16.6% and unit rents rise by 14.2% over the past year. Both cities have seen the monthly growth in rents slow, however rents were still 1.0% higher over the month in Perth and 1.4% higher in Darwin.

 

Yields remain under pressure

With housing values generally rising faster than rents, gross rental yields

remain under some downwards pressure. As of the end of May this year, the average gross rental yield across the combined capitals was 3.2%, down from 3.5% this time last year. Almost every capital city and non-capital city region has seen yields compress over the past year, with the exception of Perth (+3 basis points), Darwin (+19 basis points) and Regional WA (+7 basis points).

Despite the compression in rental yields, with fixed term mortgage rates for investors averaging below 2.5%, opportunities for cash flow positive properties are becoming more frequent than a few years ago. A positive cash flow investment would be more challenging in the lowest yielding capitals, Sydney (2.6% gross) and Melbourne (2.9% gross).

 

Long-term outlook is for slowing pace of appreciation

With investor activity trending higher along with a surge in new residential construction activity, the longer-term outlook for rents is likely a slowdown in the pace of rental appreciation, at least until international borders re-open which would help to shore up tenancy demand, especially across the inner-city precincts of Melbourne and Sydney.

 

GROSS RENTAL YIELDS NATIONALLY

Sydney                                    2.6%                

Melbourne                               2.9%                

Brisbane                                  4.2%                

Adelaide                                  4.3%                

Perth                                        4.4%                

Hobart                                      4.4%                                

Darwin                                      6.0%                

Canberra                                   4.3%                

National                                    3.5%

 


HOW TO AVOID BOND DISPUTES


Sometimes tenants are left perplexed as to why their bond or a portion of it was retained. If a property manager must retain a bond, it’s commonly because the property is not in the same condition when vacated as it was when the condition report was completed, or because rent was not paid as agreed. For this reason, an accurate condition report at the time the lease is signed is crucial. If a tenant wants to dispute their bond refund (or lack of), they will review the condition report that was completed when they moved in. It’s for this reason that your property manager is meticulous about the detail he or she include in a condition report. Also, its why tenants should pay attention when reviewing and signing it. 

A property manager’s role is to ensure a property remains in good condition for their landlord, so good communication with the tenant is key. Encouraging the tenant to be proactive and provide solutions before they lose their bond works in everyone’s favour. Rental property managers see hundreds of properties every year and though it’s their job to document things precisely, brevity can take priority sometimes and for a tenant waiting on their bond to be refunded, the devil is in the detail. What was originally documented as a scuff mark, is not grounds for a wall to be repainted some years later. Everyone could end up at the tenancy tribunal, simply because neither the tenant nor the property manager paid enough attention to the condition report.

 


IS A PROPERTY MANAGER NEEDED FOR A GRANNY FLAT?


There are plenty of advantages to renting out a granny flat for some extra income, however the decision for property owners around whether to self-manage the property or get a property manager can be difficult.

Renting out property comes with a range of legal and financial responsibilities so it’s important landlords are clear on how much work they can put into managing the property and what elements might be better outsourced. An arm’s length approach does keep everything professional, and issues can be managed with objectivity, however the cost and detail involved may vary from one situation to the next.

Once issue specific to granny flat rentals is the proximity of the would-be landlord to their new tenant. If the granny flat is at the back of a property with a separate entrance, it’s not unlike an off-site investment property. If, however it’s a converted garage still attached to their house, or is just a few metres from the main house, there may be issues around privacy and problems arising that would be much better handled by someone externally. Having a property manager in place creates clear boundaries and prevents the property owner having to respond to knocks on the door at all hours from their backyard tenant. 

The distinction between a property owner and a property manager is that an agent has the professional skill and expertise to not only quickly and easily navigate things as they happen, but to also be across the rights and obligations of everyone involved. This could mean anything from scratching floorboards, and marking walls, to letting unauthorised pets pee on everything and dealing with tenants never cleaning the oven. There is frankly no end to the creative license some tenants will take with a rental property, and they are less likely to get away with it in a professionally managed property

In most cases, landlords discover the costs involved with having a property manager are more than worth the investment. Property managers navigate the complexity of establishing the right price for a rental, they also ensure boundaries are established between landlord and tenant, as well as take care of the important legal and financial details that are much better taken care of by someone who knows that they’re doing. Ideally, a property manager will be well informed about what kind of monthly income other similar properties are generating, and what things could be changed or added, to get the competitive edge in what might already be a tough rental market for landlords. A property manager can do all the things a landlord needs, in a fraction of the time it would take someone without the experience. They are also much better positioned to solve problems, as a professional and objective third party.