Rental prices have moderated compared to the peak rental market in 2013. This is impacting some property types more than others.
This can be frustrating for property investors, but it is common in this part of the cycle. Generally, the growth in rental income works in opposition to the cycle for property prices.
When prices are stagnant or falling, rental returns are often stronger. This was the case in 2013 when rental prices peaked. However as property prices start to rise, rental returns level off and in some instances can start to fall. In the current market, the high number of investors dominating property purchases over the past 18 months has resulted in a big increase in the number of properties available for rent. At the same time the pool of potential tenants has decreased as those tenants moved from renting to owning.
Over the past 6 months there has been a higher than usual number of tenants breaking their leases.
The two main reasons are:
- They have purchased a property or;
- They have a work opportunity in another location.
The result of the high levels of supply and decreased level of tenant demand is that rental prices are mostly stable for lease renewals but the tenants are paying less for new leases.
The most heavily impacted property type has been 2 bedroom units – particularly in areas where large scale new complexes are being constructed. Currently Brisbane has over 12,000 units under construction or approved for construction in the near future. There is an estimated further 20,000 more units proposed across Greater Brisbane. The release of new units for rent affects established rental prices until supply is absorbed. This is impacting on rental income and vacancy periods for units (all other things being equal).
Gross yields on established units and townhouses purchased in the past 12 months have come down from 4.5% for houses to an average of 4.2%.
Freehold houses have adjusted from 4% 12 months ago to around 3.7%.
Read more of our comments in Smart Property Investment:
- Try to keep good tenants and offer a moderate rental increase or no increase depending on how many other rentals are currently vacant in your area;
- For new leases and lease renewals make the renewal due during the 2 peak rental periods of mid-January/February and mid-June/July; and
- Call or email us for a property review.