Rental Market Update Q2 2019

Overview:


For the first time in seven years, rent prices have fallen, with the latest Domain Rental Report data showing the median price fell by 2.3 per cent to $430 over the past three months.

The drop-in house rents come after five years of substantial growth which saw rental prices rise by 13 per cent across Melbourne, the Domain Rental Report for the June quarter, released on Wednesday, showed.

While house rents dropped, weekly rents on units rose by 2.4 per cent making the median rent for a unit $420 – just $10 cheaper than for a house.

Domain economist Trent Wiltshire said rents on units had held up well over a period where house prices significantly dropped, and apartment numbers surged in the inner suburbs.

“Rent on a typical unit has grown 14 per cent over the past five years which has occurred despite the city’s biggest apartment construction boom occurring during this time,” Mr Wiltshire said. (1)

Source: Domain Rental Report, June Quarter, 2019

Source: Domain Rental Report, June Quarter, 2019

Core Logic Research Analyst Cameron Kusher said “Overall, the rental market remains quite mixed; however, it is clear that Sydney accounts for a large share of overall renters with annual falls in Sydney leading to a fall in the combined capital city index,” Mr Kusher said. “Sydney and Melbourne continue to experience the impact of heightened demand from investors over recent years, along with a substantial ramp-up in new housing (largely apartments) supply, much of which was purchased by investors.” (2)

 

Rental Yield Growth:

The Real Estate Institute of Victoria (REIV) discovered that the best yield growth in one-bedroom apartments in Melbourne was in Melbourne CBD and Southbank at 6.6 per cent and 5.8 per cent, respectively, as well as Docklands at 5.5 per cent.

According to REIV president Robyn Waters, the excellent performance of the said locations is due mainly to their attractiveness to a large demographic

especially young professionals.

Furthermore, these apartments usually being at a more affordable entry point for budding investors, with the median price for a one-bedroom apartment in Melbourne and Southbank priced around $347,000 and $394,250, respectively, on the other hand, two-bedroom units in Docklands run for a comparatively pricier median of $620,000.

“Positive results for these inner-city areas are largely due to their appeal to CBD workers, higher education students and their families as well as retirees, all of whom value proximity to the CBD with all it has to offer and access to public transport,” Ms Waters said. (3)

Other Melbourne suburbs offering affordable one-bedroom units are Carnegie, Richmond and South Yarra, all performing at yields of 5.3 per cent and Prahran at 5 per cent.

 

Vacancy Rates:

Australia wide the rental vacancy rate remained stable at 2.2 per cent over June, but the headline number hides a straying trend between south-eastern cities and the rest of Australia.

Sydney, Melbourne and the ACT experienced an increase in vacant rental properties on the back of increasing supply and slowing demand.

Even with growth in the ACT vacancy rate, rents across Canberra have continued to rise. This is counter to the inverse trend in Sydney and Melbourne, where rent inflation has begun to slow.

Strong population growth in Melbourne, which has averaged 2.6 per cent a year since 2013, has created ongoing demand for rental properties across the city. The demand has also seen Melbourne’s vacancy rate, now 1.7 per cent, stay low.

Source: Domain Rental Report, June Quarter 2019

Future Outlook:

Moving forward, as rental rates continue to rise, future buyers that are renting, waiting to get into the market will find it more affordable to buy than rent pushing first home buyers back into the market.

With the Reserve Bank of Australia announcing the second rate cut for the year, this will encourage more buyers to get back into the market.

This will likely cause prices to rise over the second half of the year making this next quarter a great time to look at getting into the market again.

 

References:

 

  1. Melbourne rents drop for the first time in seven years. (2019). Retrieved from https://www.domain.com.au/news/melbourne-rent-prices-drop-for-the-first-time-in-seven-years-in-june-quarter-2019-857183/
  2. Melbourne rents drop for the first time in seven years. Domain. https://www.domain.com.au/news/melbourne-rent-prices-drop-for-the-first-time-in-seven-years-in-june-quarter-2019-857183/. Published 2019. Accessed July 12, 2019.
  3. Dabu</a> &, Dabu B. Property market update: Melbourne, May 2019. Smartpropertyinvestment.com.au. https://www.smartpropertyinvestment.com.au/research/19674-property-market-update-melbourne-may-2019. Published 2019. Accessed July 12, 2019.