Friday, July 21, 2006

Rental increases hit the headlines

This week there have been endless reports of the pending increases in the rental crisis as we head into a period of historically low vacancy rates and a stable housing market. The industry standard for a stable rental market is considered to a vacancy rate of 3% and Adelaide at the moment has a vacancy rate at 1.7%. This compares with Melbourne and is lower than Sydney where rents are substantially increasing. To date Adelaide is recording an 8.8% growth over the previous 12 months which is well inexcess of inflation and combined with more stable house prices represents a real growth in return for investors.
There has been much speculation as to whether this will be the catalyst for another round of housing price increases as investors will be lured back into residential property as one of their preferred investment options.
The reasons for the rental market to be undergoing this rental growth is simple. Rents have remained almost stagnant over the past 5 years and during the boom period there was substantial influx of investors which provided a large supply of rental accommodation. First home buyers were active and moving out of rental accommodation into their own properties. This kept the supply and demand in equilibrium and saw an extended period of stable rents and in some cases we saw rents in decline, in 2004/2005 as the market came out of the boom and the stock market became attractive many investors moved out of property and into alternate investment areas. In short there are too few rental properties for the demand which is pushing rents up.
Is it time to buy back into the rental market? For long term investors there is an excellent track record of capital appreciation in property and with the upward trend in rents there is now improved cash flow, combined with historically low interest rates. So be sure to put property back on the agenda.

Happy House hunting!

Anthony Toop, Managing Director.

© Toop Real Estate Group

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