Rental Market Softens

Landlords Face Some Challenging Conditions

Landlords have enjoyed consistent price growth over the past decade. Admittedly the growth was coming off a very low base compared to the value of the investment property. Now as record low interest rates and mass construction of home units make buying more affordable, many tenants are abandoning the rental market.

For a long time it has been cheaper to rent than buy. But with mortgage rates sitting at 5%, a buyer with a $50,000 deposit on a $550,000 apartment would face repayments of $500 per week. That same apartment may cost somewhere between $550 and $600 per week to lease, making buying an appealing option for many.

Not only has the falling interest rates spurred tenants to become buyers and in turn weakened demand for rental properties. Statistics show that “share households” in the rental market has risen in an attempt to offset the rising prices. Two or three tenants sharing the one property dilute demand across the board.

The situation is far from dire for landlords. The worst news is the reality that rental prices have not risen in the past 6 months. They simply have remained stagnant. It has surprised some landlords to learn the market is not willing to pay more for their property when it becomes vacant. Therefore, it’s advisable that landlords find a compromise with good tenants when the time to negotiate a lease extension arises. Moving a good paying tenant out in the hope of a getting more rent may not be the best move at present.

Time on market has also increased for landlords. Correct pricing is imperative to ensure that your vacant property does not languish on the market whilst you forgo precious income.

The rental market softened during the winter of 2012 also as tax changes in the Federal Budget had a noticeable impact on the market. Over the New Year period heading into 2013 the market had regained some confidence again.

The current weakness in the market may only be seasonal with a rebound just around the corner. As both a tenant and a landlord, if you are aware of the true market conditions when it comes to negotiating the lease, you are equipped to negotiate a fair outcome.

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