Wow! What a start to 2021! To say that the market has defied expectations would be an understatement. Its not just the residential sale market which is performing strongly but the residential rental market as well.
IT’S A SELLERS’ MARKET AS AUSTRALIAN PROPERTY PRICE RISE AND BUYERS CAN’T GET ENOUGH!
There can be no doubt that across Australia property prices are on the rise and buyers have an insatiable appetite. As I said last month, supply is down and demand is up. We are routinely seeing properties sell over asking as buyers battle to secure property. Record low interest rates as well as changing saving habits on the back of COVID -19 are no doubt driving the boom.
Our personal experience is that buyers will most often have 20% of the purchase price + stamp duty saved. Record savings rates during COVID which has given people a lot more money to put down as a deposit. Competition between banks is continuing to drive the ultra-low interest rates while the economy starts to pick up with a recovering unemployment rate (although I note the unemployment rate ticked up in Sth. Aust. and we now have the highest in the country).
Australians are recognising that real estate is a solid investment option with many buyers turning to regional, beachside and lifestyle areas as our work arrangements changed during the pandemic.
Adelaide’s housing market had often been considered an affordable option when compared to more expensive markets in Sydney or Melbourne in the eastern states. We are seeing an influx of interstate buyers and renters now.
By the end of 2020, Adelaide’s average house price reached a record high, peaking at $510,000, while some properties in the inner metro are selling around $100,000 above the asking price.
RBA Governor Philip Lowe has also pointed out recently that housing prices are on the up despite the pandemic. He doesn’t seem concerned however, pointing out that “[t]here’s a lot of focus at the moment on the fact that housing prices are rising again, the national house price index today is where it was four years ago. We’re back to where we were at the beginning of last year.”
The Australian Bureau of Statistics highlighted how first home buyers have been a driving force behind the recent rally in prices. The ABS data shows first homebuyer loan commitments jumped 9.3 per cent in December and 56.6 per cent over the past year.
Going forward it is hard to see a sudden halt to buyer demand, but all property markets have a cycle they tend to follow and 2020-2023 might look something like this.
- Price falls: we experienced this stage as prices fell this year in response to COVID.
- Stabilising of prices: prices in the December 2020 and March 2021 quarters should stabilise as stimulus and government measures remain in effect (in fact they grew in Sth. Aust).
- Softening of prices: lenders will begin easing loan deferrals in the June and September 2021 quarters and we may expect to see distressed mortgages come to market.
- Price increases: low interest rates, early economic recovery, policy stimulus and improved affordability will see another increase.
So, the savvy investor might ask where to buy an investment property in Adelaide? REA has provided a link and insight on what might be right for you.
RENTS IN AUSTRALIA ARE ON THE RISE
Almost 12 months after it began, rental markets appear to have largely shaken off the ill-effects of the pandemic. According to property investment house SQM Research, the national vacancy rate is now 2%, below the pre-pandemic level of 2.1%, as capital city markets around the country continue to tighten. Click on the link to see the Capital City Vacancy Rates
In Sydney, the CBD vacancy rate has fallen to 5.8%. from a May peak of 14.8%. In Melbourne, an October peak of 9.4% has declined to 7.6%. While a lack of population growth and the continuation of closed borders may leave Sydney and Melbourne rents hamstrung, it is a different story in other capitals.
Elsewhere, heavily constrained vacancy rates are forcing rents higher. In Perth, rents have soared by around 12% in just 12 months. Tenants in the West Australian city are now paying $50 more per week for a house and around $40 more for a unit.
Houses in Darwin meanwhile are costing tenants 27.5% or almost $130 more than they were this time last year. Nationally, rents are up 10.2% on houses and 4% on units, costing $497 and $386 each on average, and lifted by hot regional markets.
Capital city rents, while still down on pre-pandemic figures, are moving 0.7% higher month on month. Canberra rents are around 5% higher, Adelaide 3%, and Brisbane 1% higher than January last year.
ELECTRONIC LEASE RENEWALS – BENEFITS BOTH THE LANDLORD AND TENANT
Lease renewals are a core workflow in property management that need to be executed with care and professionalism to get the desired outcome.
As is the case with property management in general, the lease renewal process depends on a series of decisions made by the property manager, property owner, and the tenant which can be unpredictable and demands adaptability on the part of the team at Philpott’s to avoid delays, frustration, and unnecessary costs.
The dependency on decisions made by owners and tenants means that it is critical to maintain a consistent flow of communication with both the owner and the tenant to ensure all parties are comfortable with moving forward, whether that be renewing the lease or vacating the property.
As we all know at the end of a fixed-term lease we must make some core decisions:
- Are we happy to offer the tenant a renewal?
- Will the rent price be increased or remain the same?
- Will you be conducting an inspection prior to offering renewal?
- Are we prepared to let the tenant go month-to-month?
If the owner is happy to move forward and renew, the next thing is to contact the tenant with our proposed renewal and wait to hear how they would like to proceed.
At Philpott’s we reach out to the landlord at least 90 days before the lease expires. This gives you time to think it over and get back the team in a timely manner.
Ideally, we want to advise the tenant not less than 60 days before the lease expires so they have plenty of time to sign the renewal or if needed we have time to find a new tenant if they decide to vacate.
You should note that a lease can not be terminated in the last 28 days of a fixed term – time is critical!
At the moment we process these lease renewals manually. Philpott’s will be rolling out some intuitive software over 2021 to streamline the process and reduce uncertainty for both tenants and landlords.
The aim of our new product will be to; hold onto great tenants, control the time of year your property is available and avoid the turnover cost associated with finding a new tenant.
You will be hearing more about this as the year progresses. We will roll out the software to tenants first and then add landlords to the platform in the back half of 2021. We hope it makes the process of lease renewal seamless for both tenant and landlord and are excited to bring this to you.
Thank you for your ongoing support!
Regards David, Benjamin & the Team at DB Philpott Real Estate