Perth rent values soar to 8.2% annually

Perth rent values soar to 8.2% annually

According to CoreLogic, the city of Perth was ranked as the Top performing in house rental market increasing by 8.2% by the end of November and 5.4% rent growth during the year.

While this may spell good news for landlords across Perth and Darwin, it is worth noting that the reason for such strong rental increases are the gradual withdrawal of investors from the market. Investors comprised only a small portion of market activity over the years following the mining downturn. As of November 2020, Perth rent values were still 11.7% lower than the peak in 2013, while Darwin rents were 21.6% lower than the 2014 high.

A time series of rolling annual growth in rents across Perth and Darwin, compared with the combined capital cities, contextualises the recent increase in rents. It shows extreme highs and lows in growth of rental incomes across these cities, and the downturn that rental markets are recovering from.

Rolling annual growth in rent values

This market environment is ideal for investors looking for positively geared properties that offer the best possible cash flow investment. It provides the top 100 suburbs for investor returns and includes income and affordability data for each suburb.

According to CoreLogic, the rapid rebound in rents could see investment participation bottom out in the residential market through 2021, and start to climb.  ABS housing finance data suggest the investor share of mortgage finance for the purchase of property through September was just 16.2% in WA, and 11.6% in the NT. These are the lowest rates of investor participation of the states and territories.

Through COVID-19, the closure of international borders was a shock to rental demand for Sydney and Melbourne, where around two thirds of net overseas migration to Australia has been concentrated for the past 3 years. The Melbourne rental market has been one of the most impacted through COVID-19, with unit rents down 7% over the year compared with a mild uplift in house rents. 

As with Sydney, the decline in Melbourne unit rents was driven by stalled overseas migration and acute job loss across sectors where workers have a higher likelihood of renting. 

Unlike Sydney, Melbourne rental demand was compounded by the second wave of restrictions through the September quarter and an abnormally high next loss of people from Melbourne to other parts of Australia through the June quarter.

The monthly decline in Melbourne unit rents has also eased, from -1.3% in August to -1.1% in the month of November. Brisbane is another city where rents have seen divergence between houses and units, though this is not as extreme as the divergence seen across Sydney and Melbourne. 

Areas further from the CBD of Sydney, Melbourne and Brisbane have been more likely to see rental value increases. These areas further from the CBD happen to be in locations where rental stock is less concentrated and is also more likely house than unit stock. We recently purchased a new townhouse in Gawthorn Terrance, Pimpama, Gold Coast at a reasonable price.

This is demonstrated in the charts on the previous page, which show rental markets further from the CBD have a lower concentration of rentals, and that rental properties further from the CBD are more likely to be houses. While smaller cities have generally seen an increase in rental values over the year, Hobart rents have fallen across both houses and units. 

Declines in Hobart rents may partially have come from a lack of demand among workers in tourism and hospitality where, as with inner-city Sydney and Melbourne, Hobart had a relatively high concentration of workers. However, another narrative around the decline in rents in Hobart has been the conversion of Airbnb to the long term rental market adding to supply, at a time when demand was falling.

As interstate borders reopen, this may see the return of stock to short term rental accommodation, and see Hobart and Melbourne’s rental markets once again tighten. This is the right time to get ahead of the game!

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