Can investors safely return to the rental market?


PRD chief economist Dr Diaswati Mardiasmo said it could be argued that last year saw “unfavorable investment conditions”, including moratorium policies on rents that go to the against mortgage freeze policies, HomeBuilder targeting first-time buyers and homeowners, and high mortgage rates for investors. .

All of these factors end up putting homeowners at a disadvantage, causing many investors to hesitate to act in the market in recent months, said Dr Mardiasmo.

However, recent data on supply, rental yields, vacancy rates and the cost of loans could point to the beginning of a recovery trend, according to the chief economist.

Shortage of supply

As of January 27, 2021, the federal government has reported over 450,000 Australian citizens and permanent residents returning to Australia from overseas.

Despite the impact of COVID-19 from April 2020, the number of arrivals has steadily increased, finally peaking in December 2020, the Australian Bureau of Statistics (ABS) arrivals data movement showed. Queensland and South Australia saw the strongest growth in arrivals between December 2020 and January 2021.

In addition, changes to some national residential rental laws have created a more favorable environment for tenants.

This, coupled with the fact that many residential development projects were halted in 2020, created a serious shortage of rental housing, according to Dr. Mardiasmo.

“The imbalance between demand and supply in the rental market has had a domino effect, an increase in median rental prices, a drop in vacancy rates and fierce competition among local residents to secure rental properties,” commented the chief economist.

Rental yields and stability of vacancy rates

In addition to the growing level of supply absorbed, rental yields and vacancy rates are also showing resilience, ultimately contributing to the recovery of the rental market.

Dr Mardiasmo said Australia’s national average vacancy rate has tended to decline since the COVID-19 peak. In January 2021, it reached 2.0%, which is lower than the vacancy rate recorded for January 2020 (2.1%) and January 2021 (2.2%).

Brisbane, Sydney, Hobart, PerthPerth, TAS Perth, WA, Adelaide and Darwin all have lower vacancy rates in January 2021 compared to April 2020 “and are either lower or similar to January 2020”.

Meanwhile, the national average rental yield stood at 4.0% in January 2021, which is comparable to the January 2020 results. At the height of COVID-19, the national rental yield declined slightly to 3. 8%, “which portrays a resilient rental market,” Mardiasmo said.

The capitals have experienced the same trend, even Melbourne, which saw rental yields on homes at 2.6% in January 2021, slightly lower than the 2.7% in January 2020.

The unit rental market, although “more volatile than the home rental market”, has also shown resilience, with a rental yield of 4.9% in January 2021. According to the Chief Economist , this is “a reasonably stable rental yield trend compared to the 5.0 percent recorded in January 2020”.

“Sydney, Brisbane and Adelaide have proven to be the most resilient for unit returns, registering the smallest declines in April 2020,” he continued.

Lower loan cost

Finally, Dr Mardiasmo highlighted the cost of loans, which has declined over the past 12 months due to the Reserve Bank of Australia’s (RBA) cash rate cut three times in 2020 in response to COVID -19.

Mortgage principal and mortgage interest rates fell from 3.88% in December 2019 to 3.29% in December 2020, making market entry more affordable for investors.

And after?

As the rental market rebounds with faster occupancy rates, cheaper loans, higher rental yields and lower vacancy rates, Dr Mardiasmo said “now is the time for investors to come back. actively “.

Between December 2019 and December 2020, investor lending activity only increased by 14.5%, which is a far cry from the 43.5% increase in homeowner lending activity, a- he pointed out.

“The rental supply has fallen in most markets, causing rental prices to skyrocket. In some places, this has even resulted in double-digit rental growth, ”according to Dr. Mardiasmo.

As that happens, it is also worth considering how investors can be protected in the future, the chief economist said.

“The time may have come to consider a residential investment plan, in the event of economic crisis and / or uncertainty,” concluded Dr Mardiasmo.

Can investors safely return to the rental market?


Last updated: 08 March 2021

Posted: 08 March 2021


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