John McGrath - End Of Moratoriums Clears The Way For Investors' Return
The property market across Australia is really firing but investors have largely remained on the sidelines, with almost eight in 10 new loans going to owner-occupiers, according to latest ABS data.
With money so cheap and property prices rising everywhere, investors would normally be active but rental moratoriums in place for up to a year in most states and territories have put them off.
The moratoriums differed slightly across the nation but most of them banned rent increases and evictions to protect tenants whose incomes had been impacted by COVID. Many owners had to negotiate and accept lower rents, which in turn compromised their ability to pay their mortgage.
The moratoriums were necessary to ensure housing security during the crisis to the one-third of Australians who rent. Investors exited the market because they had no surety of rental returns and their own jobs might have been at risk too, so why take on a new mortgage even if it’s cheap?
The landscape for investors is now changing, with most of the moratoriums now over (NSW, Western Australia and Victoria ceased last week) or coming to an end soon (South Australia May 31).
COVID is suppressed and the economic recovery is well underway, with latest jobs data showing more people are employed today than pre-COVID. So, investors are feeling more secure in their jobs, mortgage rates remain incredibly low and they’ve recently been watching prices take off.
The final hurdle - a return to a normal rental market, has now been largely cleared. Not only can investors seek normal market rents again, they’ve actually gone higher as a result of unmet demand in many areas.
Ironically, this has been caused by the moratoriums themselves. Tenants stayed put and the turnover of rentals was vastly reduced, limiting supply to new renters and pushing up weekly rents.
SQM Research shows national median house rents have increased 10.9% and apartments 4.8% over the 12 months to March 20, 2021. Remember, these are the gains attained by a small proportion of landlords whose tenants voluntarily left, which allowed them to raise their asking rent.
It’s interesting to look at how COVID has positively impacted both our sales and rental markets.
Take Western Australia, for example. That’s been a tough market for many years following the end of the mining boom. A lack of investor activity has significantly reduced the supply of rental homes, which didn’t matter before COVID because demand was weakened by slowing population growth.
Then came COVID and demand suddenly spiked, as many expats returned and thousands of East Coast FIFO families relocated behind the hard border to maintain their high-paying mining jobs. This led to a 12.1% jump in Perth house rents and 10.4% in apartment rents in just one year.
The increases are even more spectacular in regional areas such as North WA, where most of the mining activity is, (house rents up 21.5%) and the South West and Goldfields Regions (both up 14%).
Now that most moratoriums have ended, most Australian landlords are free to ask for more rent on lease renewals (usually negotiated for good tenants) or readvertise at the new market rate to take advantage of tight supply and demand.
I think investors have a golden window of opportunity now, especially apartment investors because prices are soft compared to houses. There’s virtually no competition from Chinese investors, who previously dominated new apartment sales but are now dissuaded by state taxes and trade tensions.
The smaller tenancy pool for apartments, particularly in inner city areas, is a short term problem that will be rectified once the world is vaccinated and we welcome back migrants and overseas students. Just make sure you have a good cash buffer to offset potentially longer vacancy periods.
In comparison to woeful returns on term deposits and bonds and a volatile sharemarket, rising rents and rising home values will make property stand out again as the best and most reliable option for ordinary Australian investors. We look forward to welcoming you back!
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
This article originally appeared in The Real Estate Conversation (March 29, 2021)
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