What’s going on in the rental market for investors?
When investors are looking at getting into a home, be it as the first page in a new portfolio or as the fifth purchase on the market, one of the most significant factors taken into consideration is the way the landscape is performing.
When rental yields are high, typically, investors jump on board, which drives the prices of homes skyward. On the other hand, when rental yields are low and investors are forced out of the market because of a lack of viable options, dwelling values fall. However, at the moment, CoreLogic RP Data is showing rental yields are slowing in some areas, and dropping in others, but the dwelling values continue to rise.
So, what does this mean for investor activity at the moment?
Investors feeling the pinch
It's not often that these sort of market conditions become apparent, but it's made it even more important for buyers to look at giving themselves the cutting edge. That's where a buyer's agent from Cohen Handler comes to the fore.
The current landscape made it even more important for buyers to look at giving themselves the cutting edge.
There is a way to look at the buying environment right now that's actually going to work in favour of investors. That is, with prices remaining so high and yields keeping low, there won't be a large number of investors buying. Demand for owner-occupied housing is still high, but many investors will be taking a step back until the market turns around.
This is leaving a door open for people who are actively looking. Those buyers will be able to take advantage of any listings that are currently on the market, but with the help of a buyer's agent, homes that are off the market become available as well.
With the help of sound relationships around the industry and an extensive list of specifications from the buyer, suitable homes will be presented to you in a matter of weeks, and the negotiations about price will also be taken care of – with your price ceiling in mind, of course.
Take Melbourne, for example. CoreLogic RP Data's monthly indices show that the median dwelling value in the city is $797,150, which has increased by a whopping 13.9 per cent in just 12 months. While that has increased, rental yields have decreased from 3.3 per cent to just 3 per cent over the same period.
Sydney is showing similar data, with a median dwelling value of $984,790, increasing by 13.05 per cent over the last year, and rental yields falling from 3.5 per cent to 3.3 per cent.
"We anticipate that the weakness in the rental market will persist over the year and rents will continue to fall over the coming months," said CoreLogic Research Analyst Cameron Kusher.
"The annual change in rental rates continues to be at its slowest pace since before 1996."
"The annual change in rental rates continues to be at its slowest pace since before 1996. At the same time last year, rental rates increased by 1.7 per cent which indicates a sharp slowdown in rental growth over the past year. Factors contributing to a slowing in rental growth include falling real wages, excess rental supply in certain areas and lower rates of population growth – all of which have impacted on demand for rental accommodation."
As the market continues this slowdown, and it's predicted to do so over the rest of the year, the cost of getting into a new investment might drop as well. A dip in buyer confidence will result in less competition. Is there an investment home that's got your name on it?
How will buyers capitalise?
Due to the lower rental yields, it might take a longer time to see a profit or positive returns from your investment. However, in the long-term, as the values of properties continue to rise, there will be capital gains galore down the track.
"While we've seen capital gains moderate substantially after peaking last year in Sydney and Melbourne, dwelling values continue to trend higher, just not as fast," noted CoreLogic Research Director Tim Lawless.
"The annual rate of growth in Sydney peaked at 18.4 per cent in July last year and has since moderated back to slightly less than half the peak rate of growth, at 8.9 per cent over the most recent twelve-month period."
It might be a different sort of return than the usual rental yields, but it's still going to be increasing the size of your property portfolio, and when it's eventually sold in the future for capital gains, you'll be thankful that you made the move when you did – especially with the lack of competition that low rental yields are going to bring with them.
Think buying right now might be for you? With demand so high and supply lacking, it's not going to be as easy as 'research and buy'. You'll need professional help, and a Cohen Handler buyer's agent is your solution. Get in touch today.