Property prices may not be rising rapidly across the country this year as they were in 2021. However, it’s a very different story for the rental market. In the year to March 2022, the national median rental price for houses lifted 8.6%, according to a Domain report. The median national apartment rent rose 5.9% over the same period.
This should come as welcome news to property investors and a sign that the market is once again turning.
Since COVID struck in 2020, closed borders, increased restrictions and low interest rates have combined to hit the rental market hard despite property prices lifting. This has meant landlords were faced with the prospect of declining rents and lower returns. In fact, the median yield on Sydney houses fell as low as 2.31% this year - or less than half the rate of inflation.
The signs are that this will quickly change, with the potential that rents will continue to rise rapidly as the property market cools, interest rates rise and immigration returns to pre-pandemic levels.
Property investors should also take heart from the capital gains they have made over the past couple of years, even if rents haven’t kept pace. Many Sydney suburbs, for instance, experienced growth of 25% or more since the pandemic began in 2020.
Any property that was worth $750,000 in March 2020 would now be worth $937,500, or $187,500 more if it experienced this rate of growth. That’s not bad at all.
Rising interest rates: what property investors need to consider
In May 2020, the RBA lifted interest rates for the first time since 2010 and it has indicated that it is likely to follow up with further rate rises soon. Here are five ways rising interest rates may impact you as a property investor.
1. You may need to pay more each month
If you have a variable rate home loan mortgage on your investment property chances are the amount you’re paying each month has already gone up. And, with further rate rises on the cards, it’s likely to rise further still. Be prepared to pay more each month, or even consider locking in a rate for some degree of certainty.
2. Rents are rising too
As we mentioned at the start of this newsletter, the good news for investors (but not tenants) is that the effect of higher interest rates is being offset by rising rents. In fact, Sydney has just recorded its fastest rate of rental growth for almost a decade. Meanwhile, rents in Brisbane (14.9%), Perth (11.6%), Canberra (16.7%) and Darwin (10.9%) have all increased by double digits over the past year. Many believe that rents will rise further, especially as property prices stall and the rate of immigration regains pace.
3. This could be a good time to expand your portfolio
While many people may think it's a bad idea to buy property in a slower market, actually, the reverse is often true. With more sales stock hitting the market you’ll have more opportunities to get hold of the perfect property to add to your portfolio. Meanwhile, improving yields should more than compensate for any short-term lack of capital gain.
4. The long term matters
As a property investor, it always pays to think long term. That means putting interest rates in perspective and remembering that, even with the recent rise, they’re still very low by historic standards. You should also remember that, if you’ve held your property for some time, the value of your asset has probably increased significantly over the past couple of years.
5. Interest rates are impacting other investments
While the media focuses on the impact interest rates have on the housing market, the reality is higher interest rates tend to affect all investments. Traditionally, as rates rise the share market goes down but that’s not always the case. Still, it’s likely that we’ll see a more volatile share market over the coming year.
In short, we’re seeing a new phase for property investors - one that will potentially be characterised by higher yields but lower capital growth. This is a natural part of the investment cycle and one that’s likely to be beneficial for those who rely on the income their investment property produces.
Protecting your property over winter: what you need to know
2022’s persistent heavy rain has caused headaches for many property investors, with flooding, mould, falling trees and other hazards becoming far more common than usual. Now, with winter upon us, we’re entering the traditional time for property maintenance with no end in sight to the wild weather. With that in mind, here’s what we think you need to know about maintaining your property this winter.
1. Conduct a proper inspection
Often no one will notice signs of wear and tear until it’s too late. And many properties have experienced more wear and tear over the past six months than they’d usually experience in six years. So if you haven’t had a professional maintenance inspection for a while, you should book one as soon as you can.
2. Carry out some proper maintenance
Those annoying jobs like checking the roof, cleaning the gutters - and cleaning the pool if you have one - can save a lot of money in the long run, especially if we experience more heavy rain.
3. Sort out the heating
If your property has heating of any kind - whether gas, reverse cycle air conditioning or an open fireplace - now is the time to get it checked. After all, most problems only get noticed when someone starts using the heating system again - and by then it’s too late.
4. Trim those trees
Falling branches can be a real hazard in strong winds and heavy rains - both to your tenants and to your property.
5. Identify and eliminate any mould
Most properties have had some level of mould build up over the past six months - and that’s only going to get worse as the weather turns colder. Mould is a health risk. If it sets in it can also be tough to remove and even affect the value of your property.
6. Call on the professionals
Of course, we can take care of all these things and more for our clients. If you have any questions or you’d like to book an inspection and maintenance for your property, get in touch.
Don’t forget that it’s tax time…
As we approach the end of financial year 21/22, it’s a good idea to talk to your accountant to ensure you are claiming all the tax deductions associated with your investment property that you’re entitled to. And, if you don’t already have a tax depreciation schedule it’s a great opportunity to get one drawn up by a quantity surveyor to ensure you’re receiving all the benefits of owning an investment property.
Want more?
If you’d like to know more about the current state of the rental market, get in touch with your portfolio partner or call The Agency head office on (02) 8376 9100 to assist.