Just Rent

Sydney rental market returns to growth, more rises predicted for 2010

Sydney rental market continues to show strength, with rental increases across the board. Rents rose across the majority of Sydney especially the unit market. Further rental growth is expected this year.

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. Five interest rate rises over the past year have forced many would be buyers to stay on as renters.

Property investors are beginning to return to the Sydney housing market, lured by high rents, a return of positive sentiment, a strong economic recovery, improved job security and historically 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 $480 per week (even with a year ago). The average weekly rent for units is currently $440 per week (even from January last year). This gives an average gross yield for houses and units of 4.42% and 5.02% 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 buying over renting. Many potential buyers have been forced to continue renting. The increase in interest rates 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. This undersupply cannot be filled quickly, resulting in rental demand remaining strong.

* Data courtesy of APM

  JRS - Investment property management experts.