Does a property correction/bust affect rental rates?

[LucasK]

Hi,

Would a property correction, or bust, have any effect on the average amount of rent, and vacancy rates?

I'm a little unclear as to what happens when there is a property bust; so far all I know is that the market prices of property go down when people start selling, but I'm not sure if it has any affect on tenants.

 

[always_learning]

In Japan rents have fallen along with property values, but not nearly as much. High priced rental properties have fallen the most and low priced rental appartments have seen only a small reduction in rental return.

For example a during the bubble a person I meet was renting in Azabu (upmarket Tokyo suburb), the rent as around $30K per month, during the bubble the owner was offered AUD$40Million for it (about 300m2 of land), he refused and set the price to $42Million and no-sale. Today that same house and land would be worth $3-4Million (not so different to Sydney's Mosman) and the rent would be $15K/month, so the price of the house reduced 90% but the rent 50%.

In more middle class areas housing appears to have lost about 50% of value and rents are down 20-30%.

Now I would say that the reduction in rents is more due to the overall stagfalation of the Japanese economy rather than the bust of the asset bubble.

My point is what caused the "correction" in property prices (if they really need correcting), if the cause was a serious degradation in employment , salaries and the economy in general then this would have a effect on rentals. My opinion is that rental yeilds on average properties would be the last thing to take a big hit.

 

[Aceyducey]

There is one rule of property investing:
People have to live somewhere

And remember than Australia is not a homogenous market - none of the major cities are homogenous markets, sometimes significant variations can occur suburb by suburb.


When property values go down there is a web of other things going on. Interest rates may be up, there may be a shortage of buyers, or some kind of mass population movement or disaster - natural or manmade - may have occurred.

You have to look at what is going on to cause the property values to fall to get a clearer idea of what rents are likely to do.

If interest rates are high & people are forced back into rental housing there can be a sudden drop in vacancy rates. If people in the area are used to paying more in home repayments than in rent then rents may rise.

If there is a shortage of buyers, basically close to everyone in the area who wants to buy has - ergo limited effect on rents.

If a population movement or disaster occurs in another area, there is likely to be an influx of renters & lower occupancy rates, higher rents. If it occurs in or from the area the reverse would happen.

So when property prices decline it's worth looking at what else is affecting the area to determine the effect on rents.

Cheers,

Aceyducey

 

[Bill.L]

Hi Always_learning,

I'm always facinated by what has happened in the Japanese property market and the info you've provided is great. I find it difficult to comprehend how people pay 15K per month in rent. From those figures it seems that yields have come back to around 5%. Could you give us more details as to what is happening as I would greatly appreciate it.

thanks

bye

 

[always_learning]

Normal people dont pay $15K a month in rent!

• Rich people with business do (doctors, dentists etc).
• American Expat's at Vice President level.

And dont forget the $3K a month per child schools, the rental furniture budgets ($5K/month).

Yeilds for prime housing would have to be around 5% nett these days. 10%++ is easy for 8~12 unit small appartment buildings in prime areas. The problem is finance. For those who say "Find the deal and the money will come", should come to test their metal against the japanese banks lending officers and policies.

 

[Peter_Tersteeg]

Originally posted by Bill.L

I find it difficult to comprehend how people pay 15K per month in rent.

Always_learning may have been quoting in Yen, not in dollars. It is about $190.

On second thoughts, he's probably quoting in dollars.

 

[LucasK]

Does rising interest rates affect rent prices in any way?

I've noticed Jan suggests in her books that it doesn't matter whether the property market is performing well or not, as long as its held for the long term.

 

[astroboy]

Originally posted by PT_Bear
Always_learning may have been quoting in Yen, not in dollars. It is about $190.

On second thoughts, he's probably quoting in dollars.

I have a friend in tokyo who pays bucket loads in rent, I am sure his annual rent is 6 figures $AUD
astroboy

 

[Guy]

Seems to me that if you have well maintained, reasonably priced rentals you'll rarely be without tenants long, especially if your properties are set up to be family or pet friendly.

 

[LucasK]

I'm considering setting it up for university students looking for a quiet environment (ie screening and contract to ensure no house parties that will ruin the entire apartment), using that as a marketing point.


I suppose for the university market, property prices are unlikely
to affect their rent?

 

[Bear924]

Does anyone know what contributed to the collapse of the Japanese housing market?? What thing or things spooked them all into selling out etc.