Friday, December 12, 2014

The 'staying put' effect... positive signs for investors.

It's looking like a great time for South Australian property investors. 

In property investment news this week we saw articles such as 'Australian Landlords take record debt as rent yields fall'. From reading the article, this headline is based on there being an oversupply of rental properties in the market. Sydney and Melbourne produced the lowest yields across the country for investors but this 'oversupply' combined with escalating prices may be isolated to those east coast markets, and not affecting the entire country. It certainly is not the case in South Australia – rentals are very strong in our market.

As a result, our leasing teams are seeing increasing numbers of tenants who are deciding to renew their lease due to the extremely competitive market. Tenants are even offering a higher rental amount than they are currently paying to ensure they secure a place to live. It is very competitive at the moment. 

Toop&Toop saw this trend start late October and reported it to you with my Inside Story headlined 'Fear of missing out has hit the rental market!'. What we are witnessing is a new cycle of rental increases under way, and once this cycle starts, it's hard to stop the momentum! Landlords are happy and tenants are no longer feeling the control they've previously enjoyed in the market. There is a much healthier balance between tenant and landlord now. As tenants see less stock on the market and become worried of not being able to secure something else, they are opting to renew. This behaviour fuels the whole rental market... and the 'staying put' effect starts to infiltrate. This is what is happening right now.

This December, we are seeing the full effect. Last December our stock level was up 180% (to the date, 13th December 2013) from what it is now. This is an incredible statistic and this 'staying put' effect is having a direct, positive affect on securing returns for our landlords.

Chatting to other agents earlier in the week, this firming of rents is happening across the whole South Australian market. Some smaller operators have just a handful of properties available... others have none! 

According to data from SQM, Adelaide currently has one of the lowest vacancy rates of 1.5%. Compare this to Sydney at 1.6%, Brisbane at 2.2% and Melbourne at 2.5%, Adelaide is in a rental property shortage. Sydney's 1.6% initially seems odd, but the headlines of yields falling is a direct consequence of rapid rises in property values and a lag in rental increases. 

Across our Toop&Toop portfolio, our vacancy rate is currently sitting at 0.66%. This is phenomenal news for our landlords. It is clear the current investment market is extremely tight. We expect to see 28.7% of our total stock become available between now and March next year – yet we are seeing this extremely low vacancy rate. It is apparent that rents will be under a lot of upward pressure if this trend continues.

Tenants are opting for shorter leases to 'get them through' until more properties become available, but those properties as of December have not eventuated. Other tenants are seeking a rental property as a stop gap while looking to purchase a property as they have been unsuccessful in this strong selling market. It's certainly a hot market right now, for both buyers and renters, and investors are finally beginning to experience the inevitable flow-on effect.

What do the official stats say? According to RP Data, Adelaide recorded the strongest annual growth in house rents at 2.8% in the September quarter review. 

Looking ahead, we no longer expect the severity of the seasonal flood of stock to hit the market in January, and given stable prices in South Australia, we're definitely not feeling oversupply nor a dip in gross yields.

Investors, this is as good as it gets! 

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