The sales market isn’t the only market struggling. We would have to say that the rental market is equally challenged.
There are so many assumptions about the relationship between rental demand and buyer demand. The most common of these that we come across is that if buyers aren’t buying, they are renting, so as buyer demand falls, tenant demand increases.
Sounds logical, but that’s all it is, a reasoned argument that fails to be supported by facts. The rental market has been so tough this year that many of our properties that have come up for rent have been painted, carpeted and freshened up and still only been leased at or below what the owners were getting prior. All my property managers have had pretty ‘frank and robust’ discussions after being challenged by different owners about why this would be the case.
Let’s go to the facts.
Vacancy periods have increased 47% from 16.2 days up to 27.8 days and it’s not getting better. And a month’s vacancy is short. We have owners who have property with other agents asking if we can help get their property leased because their properties have been vacant for 3 months or more. The volume of property on the market for rent is skyrocketing.
There are currently 112 two bedroom units available in the suburb of Ryde for a tenant to look at and choose between. Most new tenants are only going out to physically look at between 5 and 10 properties before applying for a property. Which 5-10 are they looking at? The ones with the most attractive rental price to start with. Another change in the market is that tenants look at photos before they read descriptions and if your photos aren’t good, they just move on. Agents are learning that Tinder behaviour of swipe left or swipe right is how quickly people assess your rental photos and whether they will inspect.
It used to be a property that was run down or poorly advertised could still get a tenant if the rent was attractive enough. That’s gone. Tenants can get an attractive rent and an attractive property now so why waste their life in a property they are embarrassed about.
What we are doing.
50% of our properties are still getting rented quickly. They are well presented, well promoted and well-priced. The properties that are struggling are being elevated by our property managers to Kristine, our Licensee in Charge and Stephen Jackson, our director. We are talking to those owners about alternatives and about how the numbers stack up if they update, drop their prices and drive the property marketing.
As far as we’re concerned this market will last a year or so. The volume of new property coming on the market to rent is astounding. Developers who can’t sell their product are leasing it, while investors who bought off plan are desperate to get a tenant. It’s not pretty out there. But once these couple of years have passed, the market will settle down.
As an investor right now, a good tenant paying a lower rent, paying out $5,000 – $10,000 in updating and having to swallow a one month’s vacancy sounds bad. But it is nowhere near as bad as 3 months vacancy, finally getting a bad tenant at an even cheaper rent and worst of all, looking at going through it all again as you have to replace them in 6 months because things went bad. Good, intelligent management is a must right now.
The rental market today presents difficult choices. Some owners are biting the bullet and making their property look attractive to the market. Some are choosing to do nothing and instead their property is making other properties look attractive. In this market you don’t get to avoid the choice.
It’s not pretty right now, but it’s also not hopeless either. We have seen this rental market before and it will not last.
Our job is to get you through these harder rental markets and take advantage of the better ones.