Question: What’s happening in the rental market?

Answer: Depends who you ask.

 

I love reading the Financial Review, you get three different opinions about the market in the one paper. And none of those opinions reflect the rental market we are experiencing.

This is what happened in March:

Month Inquiries Inspections Applications Leased Properties
March 525 156 126 22
February 993 190 168 34
January 1327 204 134 32

Truth is you can’t tell too much from these figures other than the fact that the volume of people out looking is coming down from the peak activity we usually see at the beginning of the year.  However, there are a few things we would point out.

Overall demand dropped by 48% between February & March, while inspections only dropped by 18%. That means that not only are less people are looking, but the ones that are looking are inspecting more properties & taking their time to choose. The internet drives everything. Prospective tenants are also better informed, with Realestate.com.au and Domain.com.au showing exactly how far your unit is from the nearest train station, from the shops or even the good Italian place for that matter.

Our biggest concern is the rent levels we are seeing achieved. In March, 54% of our property rented at the price we targeted, less than 5% rented for more and a little over 40% rented for less. We haven’t seen a drop off like this for a very long time and particularly so when March and April are meant to be tight times in the rental market.  And the reason is very clearly the increasing supply of investment property in our area.

From the 1st of July 2015 to the 30th June 2016 , the top five suburbs by total value of projects starting construction were:

  1. Parramatta: $1,014,202,000
  2. Kellyville: $867,028,000
  3. Sydney (CBD): $771,336,000
  4. Ryde: $539,349,000
  5. Botany: $463,770,000

It’s now 2018 and many of these properties have been completed or about to come up for completion. While we are being hit hard, we have clients who have property in the Kellyville area and the rental market there is becoming ugly with massive price drops and vacancies measured in months rather than days. 

Many owners think that new property and existing stock don’t compete but they do, just not directly. Many agents that rent new property have an application and checking system that is basically – are you alive – do I believe you won’t destroy the property – good to go – the place is yours! Seriously, I’ve leased new property and have been standing out the front waiting for people to arrive and seen other agents shouting out to our prospective renters to come look at their property, because they will give them free rent, they will beat any rent price offered.

As people take up these more expensive properties, the next tier down suffers a loss of demand and rents drop for those properties. The supply and pricing of those properties in turn cannibalises the demand for the next level down and so on.  If we are lucky, the market stabilises at a new price point but if supply keeps coming on line, we go through another round. A client of ours was promised by the developer a rent of over $900 per week in Gladesville. Nearly 3 months later they gave up on the developer’s agent and asked us to rent it. We achieved a rent in the $600’s. Not a nice investment experience for the owner.

We have particular strategies we apply in markets like this. Go long!

The focus isn’t to get a tenant quickly, it is to get a good tenant who will stay for a longer period of time. The Kellyville and Gladesville examples didn’t need to take months to rent, they needed to price adjust quickly, quicker than the competition – and not to get a tenant quickly but rather to have the best tenant choose your place.  Tenants that turnover are a disaster because another vacancy in 12 months’ time will only dump the poor landlord in a market that is far worse. Instead of their property being brand new, something else will be and it will have pressure marks on the carpets & maybe a stain (remember the tenant selection process wasn’t that stringent). The common hallways walls might be marked, and lift might smell (we see this all the time). There will also be more new blocks on the market.

By choosing people who stay, we help owners avoid the falls in the market. Our average length of tenancy is coming down. We can’t not be affected by this market but we are still achieving close to an average of 4 years tenancy per property. Rental bond board stats indicate our area is averaging less than 1.5 years per tenancy. And there are side benefits to this focus. Because our price ranging system adjusts quickly to the market, our average vacancy period reduced in March by 3 days.

We are doing other things as well. We have just launched DIAKRIT interactive floorplans and photography. It costs $250 per property but allows prospective tenants to place furniture on the plans, measure rooms, even fridge spaces. The result, people look at these listing on the internet for an extra 3 and 1/2 minutes compared to the average rental listing. And we are getting better numbers of inspections and better quality tenants. Your property manager will suggest it to you if your property comes up for rent. Early indicators suggest it’s a better investment than having your property sit vacant for a few extra weeks.

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