Sydney rental market shows a slight softening, rises predicted to return for 2012
Sydney rental market showed a slight tick down on rental yields quarter on quarter, however year on year rents are still up slightly. A chronic undersupply of property is the main reason given for the rental markets strength. Rents rose across the majority of Sydney especially the unit market. Further rental growth is expected this year, and indeed over the coming years due to the lack of new stock coming online.
There are several factors that have changed in the market, contributing towards the return to growth. Demand for the Sydney real estate market remains strong, with a lack of accommodation across Sydney due to few new developments, and rental yields are still relatively high. Two interest rate drops over the past year (2011) have contributed in lowering the mortgage demands and therefore increasing the gross yield on properties.
Property investors are beginning to return to the Sydney housing market, lured by higher rents, a slight uptick in property market and economic sentiment, improved job security and relatively low interest rates. Investors are seeing opportunities in the Sydney property market after years of avoiding it. Low interest rates, a recovering economy and house prices starting to increase, suggesting that the property market may have bottomed out last year. International investors are also very active in the Sydney real estate market.
There are still opportunities for positively geared properties in the Sydney real estate market. The drop in the first home owners grant has reduced the demand for property in this segment of the market; however investors are more than making up for this, returning to the property market on mass.
Median Weekly Rents Sydney *
The current average weekly rent for Sydney houses stands at $500 per week (up slightly on a year ago). The average weekly rent for units is currently $450 per week (a slight increase from December last year). This gives an average gross yield for houses and units of 4.91% and 5.10% respectively.
The reduction of the first home owners grant at the end of December is a significant factor in the rental market. This reduction of the grant in turn reduces the attractiveness of would be first home buyers buying over renting. Many potential buyers have been forced to continue renting. The increase in interest rates early in 2011 also dampens the first home owners segment of the market, forcing many to remains as tenants till they can more comfortably afford to purchase their first property.
The real driving force for property over the coming year(s) will be migration. The government has adopted a strong migration policy, aiming to increase skilled migrants dramatically over the coming years. Short and long term migration rates along with high birth rates continue to push the population along strongly, creating a continued gap between dwelling supply and demand. This population growth will assist in pushing rental prices up. On top of this there is a gap that is widening between demand and new stock that is being built. Developers have shied away from the Sydney market for many years due to the high cost of developments and the lack of a robust sales market. This lack of new developments in Sydney of both units and houses will continue to put pressure on the rental market. This undersupply cannot be filled quickly, resulting in rental demand remaining strong.
* Data courtesy of APM
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