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Recent evidence
suggests that rents are starting to increase as capital gains
fade and slip into negative. As always, there are winners and
losers and this week’s Property Pulse looks at the best and worst
performing markets for rental growth.
The latest results from the RP Data – Rismark Home Value Indices
show that over the 12 months to March 2011 capital city rental
rates have increased by 2.9% which is well below average.
However, over the last quarter, capital city rents have increased
by a much larger 4.8%. The view that rents are starting to increase
is supported by the most recent CPI data from the ABS which
suggests that rents have increased by 1.3% during the first
quarter of 2011.
According to our data, rents for houses (up 3.3%) have increased
by more than rents for units (up 2.0%) during the year. In
contrast, capital gains for units (up 1.4%) have outpaced those
of houses (down 1.2%) over the same period.
As always, there are winners and losers with some areas
experiencing rental growth well in excess of the national
benchmark while others dramatically under perform.
Across the various capital cities, rental growth over the year
has been strongest in: Sydney
(5.3%), Hobart (4.5%), Perth (4.4%) and Adelaide (2.8%). The laggards
for rental growth have been: Darwin
(-3.7%), Brisbane (-1.0%), Melbourne (0.9%) and Canberra (2.5%). Across all
cities, rental growth over the last year has been well below the
five year average annual rate for capital cities of 7.0%.
The capital city region that has recorded the greatest increase
in advertised rental rates over the 12 months to March 2011 was
Woollahra in Sydney’s
Eastern Suburbs. Houses within the popular inner city region have
recorded an increase in advertised rents of 22.2% over the year. Sydney
regions dominate the list accounting for 23 of the 35 best
performing capital city rental regions over the last year. Houses
have also dominated the list accounting for 22 of the 35 best
performers.
In contrast, the Perth council
area, which is essentially the inner city region of Perth, has
recorded the greatest fall in median advertised rents over the
last year. Median house rents have fallen from $650/week to
$510/week, a fall of -21.5% over the year. Perth regions have dominated
the list of weakest performers, accounting for 20 of the 35
weakest performing capital city markets for rents. Across the
weakest performing regions, units (19) have underperformed houses
(16).
With tight rental vacancies and ongoing demand for rental
accommodation, we expect that weekly rents will increase in most
capital cities.
Although there was a surge in building approvals last year, in
many instances this new supply won’t actually get to the market during
2011. Also, with banks’ lending criteria tight requiring
significant pre-commitment of sales within new developments we
are seeing fewer new high density developments taking place in
inner city areas. These regions in particular are particularly attractive
for renters as they provide significant levels of amenity. With
less new supply in most capital cities it is likely to create
greater competition for available stock and result in rental
increases.
Given these conditions, we anticipate that rental growth should
be quite strong during 2011. Over the last two years, capital
city rents have increased by a total of just 3.2% which is well
below the average annual rental growth level of 7.0% during the
last five years.
It is anticipated that rental growth this year will be more in
line with five year average levels than with recent growth
levels, recorded at a time when property values were typically
increasing.
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