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Rentals – by Matusik

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Moreton Investor (9), Property Management, Real estate Moreton, Mortgage Broker Moreton, Moreton property market

We keep on reading about how low residential vacancies rates are across much of the country. Moreton Investor (9), Property Management, Real estate Moreton, Mortgage Broker Moreton, Moreton property market

Ditto on how much rents have risen; and the expectation that they will continue rising, and at the same pace, well into the future.

But several sub-measures of the rental market suggest that rental growth is already slowing down.  Also, more renters are sharing accommodation in order to afford to live in preferred locations.  Plus, renters are leaving sub-par, even average digs, and relocating to better properties.  Renters are also staying longer in quality & well maintained homes & occupying lesser quality properties for increasingly shorter leases.

Some statistics

There are some 1,600 postcodes across Australia.  Last year, 40% of these experienced a decline in their rental vacancy rate, whilst just over half (52%) saw an increase in the number of dwellings available to rent.  Eight per cent saw no change in rental supply.

Nine out of ten postcodes across the ACT saw a lift in vacancy rates during 2012, as did seven out of ten in Tasmania & two out five postcodes across NSW also experienced an increase in rental supply.  Western Australia & Queensland had the highest proportion of postcodes (55% & 50% respectively) experiencing a decrease in rental supply.

When looking closer to home, median house rents across Brisbane have increased by $70 per week over the last five years (2007 to 2012 calendar years) but the rate of growth has slowed significantly in recent times.  Close to half of this rental growth occurred between 2007 & 2008, and whilst median house rents rose $15 between 2010 & 2011, they rose just $5 last year.

The same applies to Brisbane apartment rents, which rose $80 in total, on average, over the same time period.  Yet, $40 of this increase was in 2007-08, with median rents also just rising $5 last year.

When it comes to rental demographics, more people are sharing.  A consistent theme across Queensland rental agencies is the increase in the number of people per dwelling.  Many have told us that there are around 30% more people living in each rental property when compared to a few years ago.

I assume this is taking place elsewhere across the country.  Tenants are leading the ‘space for place’ charge, forgoing personal space in order to afford to live near the action.  The 2011 Census doesn’t supply us with the number of people renting, but some quick maths suggests that 2.5 people live, on average, in the nation’s 2.3 million rental dwellings.  Ten years ago, the average size of the rental occupancy across Australia, was closer to 2.

My comments

My experience – regardless of the stage in the property cycle – is that competition is fierce in rental markets.  Prospective tenants always compare your property to whatever else is on offer.  They just don’t blindly accept the asking rent without doing their homework.  And these days, lots of it.  Many parents wish they had studied that hard when at school or Uni!

Too much commentary is based around the total level of supply.  Poor product doesn’t rent well, regardless of the lack (or otherwise) of supply.  There can be, for example, 1,000 new apartments being developed in one postcode, much of which is likely to be pretty average in terms of liveability.  As a result of this quantum of pending supply, the mortgage insurers, valuers & investment sellers all blacklist such an area regardless of knowing what stock is actually being supplied.  The well-targeted & designed project(s) in the same area – which will most likely rent out well & resell for a premium – now get dragged down by this helicopter pigeonholing.  The devil is in the detail.  Sadly, detail takes time.  Time costs money.

Developers often seek attractive forward rental estimates to help sell their new product – but in light of the above (and the compromised nature of much of the new stock currently on offer) – the anticipated weekly rents seem, to me, to be quite high & highly improbable.  Investors should do their maths on a lower rental figure – something like 10% to 15% less – to be on the safe side.

Don’t expect rents to rise automatically every year.  There are many things an investor can do to maximise rents, but again, my experience suggests that rents don’t rise every time a lease is up & keeping a good tenant, even for a bit less rent, is far better than getting more money & having tenant problems.  Oh the tales I could tell!

An investor’s aim always should be to sign the best tenant for the highest possible rent in the lowest possible vacancy time.  Never let your property sit – advertised for rent – vacant for too long.  Properties should be rented out in weeks, not months.  Waiting too long stuffs up your cash flow & often gets you less rent in the end.  If you want to take longer, do not list it for the full time.  It will look stale.  Target your lease periods around maximum take-up periods.  They vary according to local drivers – i.e. universities, hospitals, new construction projects etc.  Ask the local rental agencies for their advice.

Finally, and we are starting to sound like a broken record, buy an investment property that can be shared.  One-bedroom stock in an inner city location is fine, just make sure the apartment design/proportions can accommodate a couple if needed.  Ditto when it comes to two-bedroom product – having separate bedrooms, with their own ensuites, allows two unrelated couples or singles to share.

In fact, the one ensuite per bedroom ratio is proving to be a good one, especially in regional markets, where resource workers often share accommodation once friendships are established.  Four middle-aged men in a four-bedroom/four-bathroom house might not smell too crash hot, but I bet my bottom dollar it would show a great rental return.

 

Article originally published   www.matusikmissive.com.au   26/2/2013

Opinion

Experts warn of ‘debt bomb’ as housing downturn worsens

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debt bomb
AUSTRALIA is facing a “debt crisis” — and the property market and our entire economy are at risk as a result.

That’s according to the sobering 60 Minutes segment Bricks and Slaughter which aired last night, revealing the country’s property downturn was just the tip of the iceberg.

According to reporter Tom Steinfort, the current slump is actually “more like falling off a cliff”, with a number of real estate and finance experts claiming houses could plummet in value by up to 40 per cent in the next 12 months.

If that happens, it would also cause an economic “catastrophe”.

Mr Steinfort spoke with data scientist Martin North from Digital Finance Analytics, who said Australia was uniquely vulnerable when it came to an economic crash tied to a property downturn.

“At the worst end of the spectrum, if everything turns against us we could see property prices 40-45 per cent down from their peaks, which is a huge deal,” he said.

“There’s $1.7 trillion held by the banks in mortgages for owner-occupies and investors. And that’s about 65 per cent of their total lending.

“That’s higher than any other country in the Western world by a long way.

“There’s probably no country in the world more susceptible to the ramifications of a housing crash than Australia. We are uniquely exposed at the moment.”

Mr North said Australia was now in the same position as the US was back in 2006 and 2007 — a position which triggered an economic collapse.

“As a society, and as a government, and as a regulatory system, we’re all banking on the home price engine that just goes on giving and giving and giving. It’s not going to,” he said.

“We’ve got a debt bomb, we’ve got a debt crisis and at some point it’s going to explode in our face.”

debt bomb

Melbourne homeowner Mohammed Souid told 60 Minutes his family was experiencing mortgage stress. Picture: 60 MinutesSource:Supplied

It’s a sentiment shared by Laing and Simmons real estate agent Peter Younan, who said the median house price in his patch in Granville in Sydney’s west had dropped from $1.2 million to $1 million in just one year — a shocking $200,000 plummet.

He said foreclosures had also risen by 600 per cent in the region.

“The mortgage stress is definitely being felt especially in this area,” he said.

60 Minutes also spoke with several Aussie homeowners who gave harrowing details of the stress they faced trying to pay off their mortgages, including having their power turned off and being “hounded’ by their banks.

What does a million dollars buy in Aussie capital cities?

debt bomb

Market analyst Louis Christopher of SQM Research said the market had been “clearly overvalued”, labelling the downturn as the “correction we had to have” — at least in Sydney and Melbourne.

“On our numbers, Sydney was effectively over 40 per cent overvalued. And Melbourne was overvalued by about the same amount,” he said.

But property investor Bushy Martin said the blame lay squarely at the feet of buyers who “mortgaged themselves up to their eyeballs” in a bid to snap up dream homes before being able to afford them.

debt bomb

Property investor Bushy Martin says homeowners are to blame for the crisis. Picture: 60 MinutesSource:Supplied

However, the segment has also sparked backlash online, with some claiming the situation had been exaggerated.

One Reddit user branded the report as an example of “alarmist journalism and scare tactics”, while another said it was “dramatic and cringe-worthy”.

Others also criticised the segment for making it seem like all homeowners would be affected, when the downturn was actually mainly focused in the NSW and Victorian capitals.

And some said it was unfair to blame the banks for the situation, and that homeowners needed to take responsibility for their own decisions.

That was in response to comments made by one homeowner on the program, who said the bank had “suddenly switched the mortgage to interest and principal”, raising his repayments by 57 per cent.

“The interest only part annoyed me the most. The bank didn’t ‘suddenly change’ your repayment from (interest only) to (Principal and interest) your IO term expired. You a) knew this would happen and b) assumed the bank would renew it when it expired. I hope this speculator gets burnt first,” one Reddit user said.

Related article: Experts warn of ‘debt bomb’ as housing downturn worsens

Source: news.com.au

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Opinion

Queensland is the next property hotspot, experts say

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Queensland is the next property hotspot, experts say

As New South Wales and Victoria continue to experience weakness. Queensland is expected to take the lead, a National Australia Bank (NAB) poll of property professionals revealed.

According to the survey, industry experts project house prices in Queensland to increase by 0.7% next year and 1.3% in two years.

Some areas seen to perform strongly over the next year include Brisbane, Cairns, the Gold Coast, and the Sunshine Coast. Out of the suburbs, Coomera and New Farm are expected to realize robust gains.

Meanwhile, Queensland’s rental market is also poised to enjoy an upward boost, growing by 1.3% next year and 1.9% in two years. This is despite the stricter rules on housing investment.

The respondents of the survey also expect Queensland to retain foreign buyer interest. In fact, the share of foreign sales hit a four-year high of 22.8% over the previous quarter.

The results of the survey go against NAB’s own projection of the market. For instance, the bank expects house prices to remain flat in Brisbane over the next three years. Unit prices, on the other hand, is seen to fall by 4.5% over the next year.

NAB chief economist Alan Oster said Brisbane’s housing market seemed to be going sideways and its unit market still creates concern.

“It hasn’t peaked yet, so that’s good. We’re seeing quite strong economic activity in Queensland, so that always helps,” Oster said, as quoted by The Courier-Mail.

Source: brisbaneinvestor.com.au

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Opinion

Gold Coast house values record the biggest growth in Queensland

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Gold Coast house values record the biggest growth in Queensland

The Gold Coast has recorded the strongest growth in house prices in Queensland over the past 12 months.

GOLD Coast house prices are leading the way in Queensland, up six per cent in the past 12 months to an average $620,000.

The latest figures by the Real Estate Institute of Queensland show homes on the Glitter Strip are $35,000 more on the same time last year.

Unit prices are up 1.9 per cent to $428,000.

Gold Coast house values record the biggest growth in Queensland
REIQ data reveals houses on the Glitter Strip are worth $35,000 on the same time last year.

REIQ’s Queensland Market Monitor for March said the strong population growth came on the back of infrastructure projects such as the $550 million Gold Coast Health and Knowledge Precinct and M1 upgrades.

“The property market has been one of the big winners from the sporting event as the $1.5 billion infrastructure investment has boosted confidence and demand for housing in the region,” the report stated.

“We expect house prices will show an upward path in 2018. However, this growth will most likely be more moderate.”

A quiet real estate period leading up to, and during, the Commonwealth Games likely contributed to a slight drop (-0.3 per cent) in the March quarterly median sales price, the report reveals.

Gold Coast house values record the biggest growth in Queensland
Andrew Henderson says a growing population and employment opportunities were contributing to a strong property market. Picture: Jerad Williams

REIQ Gold Coast zone chairman Andrew Henderson said he expected interstate migration to continue to benefit the city.

“I expect the market to remain strong,” he said.

“There is a heavy amount of interstate buyers moving here.

“I was at an auction recently where the winning bidder was from Sydney and the underbidder was from Melbourne.”

Mr Henderson said growing employment opportunities were also attracting homebuyers to the city.

Gold Coast house values record the biggest growth in Queensland
The Gold Coast property market is expected to remain strong.

“We have some of the best health facilities in the country and our universities are world recognised.

“Those two things alone complement the tourism industry and the lifestyle aspects that the Coast offers.”

The report found the fastest-selling suburbs on the Coast included Worongary, Merrimac, Highland Park, Mudgeeraba and Carrara.

It also revealed the rental vacancy held tight throughout the first quarter of the year at 1.1 per cent.

Gold Coast house values record the biggest growth in Queensland
Andrew Bell says the Coast had evolved from a tourist town into a vibrant city with an expanding economy. Picture Mike Batterham

Ray White Surfers Paradise Group CEO Andrew Bell said the Games heralded the next chapter for the Coast, as it evolved from a tourist town into a vibrant city with an expanding economy.

“The city’s property market is riding the irreversible momentum that has now come to the Gold Coast in terms of economic diversity and with more employment options we will need more housing options for people,” Mr Bell said.

“We are no longer going to be subject to tourism upsides and downsides as we were in the past because our economy has well and truly diversified beyond just tourism.”

Source: brisbaneinvestor.com.au

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