Double-digit annual rental growth

These days, it can be hard to avoid the gloomy real estate news. What’s not being talked about enough is how the current market can also present opportunities for those savvy enough to seek it.

In this newsletter, we’ll take a deep dive into rents and give a few pointers on where you can find areas with double-digit annual rental growth.

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• Property markets across the capital cities have seen the busiest start to winter in more than 10 years, according to Proptrack.
  
• In June, new listings across the capitals were up by 5.9% compared with the same month last year.
  
• Hobart saw the biggest jump in new listings year-on-year, with a 44.4% increase.

Over the year, all capital cities recorded rental growth across both houses and units, Domain data shows.

Nationally, the total supply of rental properties plunged by 18.2% in the past 12 months, according to PropTrack.

The solid rental growth has been attributed to several factors:

• The COVID-induced property boom prevented renters from buying and giving up their tenancy, keeping supply low.
• Many property investors have sold during the boom to capitalise on high prices, and seldom to other investors, reducing supply. In Victoria, some have been forced to sell up due to the state’s new minimum rental standards, which would have increased holding costs.
• Renters sought to move out for more space during the pandemic, pushing up demand.

Vacancy is at a 16-year low of 1%. All capital cities except Sydney (1.4%) and Melbourne (1.5%) have vacancy rates of below 1%.

Canberra has the most expensive rents across houses and units. Adelaide has the tightest rental market.

Sydney

In the 12 months to June, house rents rose by 12.7% to $620, while unit rents soared by 11.7% to $525.

It’s the strongest annual increase in 13 years and 14 years for houses and units respectively.

Unit rents (5%) grew faster than that of houses (3.3%) in the June quarter. House rents rose for the 5th straight quarter, unit rents for the 4th.

Melbourne

House rents grew by 7% to $460 over the year to June, while unit rents jumped by 10.8% to $525.

Unit rents have outpaced house rents both over the quarter and year.

Melbourne’s vacancy rate (1.5%) has fallen to its tightest level since February 2020. Less than 2 years ago, Melbourne’s vacancy was 5.2% in December 2020.

Brisbane

Over the year, house rents ballooned by 16.9% to a new peak of $520. This is the highest annual house rental growth rate on record.

Units rents climbed by 12.5% to a record $450. It’s the strongest annual increase since 2009.

The vacancy of 0.6% is the lowest recorded, with rental listings halving over the past year.

Source: Domain - June 2022

UNITS SHOWING STRONGER GROWTH

There is a clear opportunity for positive gearing with unit rental growth outperforming that of houses in the three months to June across the east coast.

A handful of suburbs on the east coast have achieved double-digit growth in the past year. A few are listed below.

NSW:

• Point Piper - 23.7%
• Kellyville - 18.4%
• Villawood - 13%

VIC:

• Docklands - 12.5%
• Southbank - 12.5%
• Box Hill South - 12%

QLD

• Coombabah - 26.1%
• Broadbeach - 23.2%
• Main Beach - 24.4%

FURTHER GROWTH ON THE CARDS

Surging rents are not expected to stop any time soon, according to a NAB survey of property professionals.

• Rental growth is expected across every state and territory in the next 1-2 years.
• Nationally, rents are predicted to increase by an average of 3.2% in the next year and 3.4% in 2 years.
  

The return of international students and migrants will continue to support rental growth and demand, especially for inner-city apartments on the east coast.

As rents grow faster than property values, don’t be surprised if rental yields also climb, offering more opportunities to positively gear.

TIME ON MARKET

Record rental growth has had another significant impact for property investors: rentals are securing a tenant quicker.

This is particularly the case for units. Melbourne units are showing the highest acceleration in time on market, renting out 43% faster than last year, according to Rent.com.au data.

If you have an empty property to rent, you can expect the upper hand with shorter time on market. Anecdotally, some landlords are receiving offers above the listed rental, applications before inspections and deposits taken on the same day as advertising.

Prices at a glance

Houses

Units‌

Overall, the rate of decline recorded across the capital cities over June 2022 for both houses (-0.9%) and units (-0.5%) accelerated at twice the rate of the month prior (-0.4% and -0.2% respectively).

Adelaide property prices showed the strongest overall growth in June of 1.3%. It has been the only capital city seeing a monthly growth rate of above 1.0% since May.

Sydney prices fell the hardest among the capital cities for both houses and units, though it is still recording annual growth across both property types.