"FHOG, IP's and the Rental Market"

From: David Gordon


With the FHOG to continue "indefinitely" one has to wonder about its effect on the rental market.

Here in Adelaide I have noticed that properties are taking much longer to rent out - sometimes well over a month!! This seems to be as a result of high expectation of a good return to cover the high prices paid for IP's.

The property market in my area seems extremely hot with great competition at auctions and sale prices nearly always exceeding the reserves. IP's seem to be the flavour of the month(s) and this coupled with the FHOG taking renters out of the market something has to give. Additionally, new stock is coming on all the time with units/townhouses springing up everywhere.

At the risk of being called a spoilsport I can't but feel that we are heading for a "correction" and over-extended investors could get seriously burnt.

We need those tenants but they are disappearing fast and those remaining in the pool are fed with a huge array of stock.

How do others see the rental market at the moment ????

Cheers

DaveG
 
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Reply: 1
From: Andrew G


Hi David,

I too am in Adelaide, and have two investment properties in Salisbury East (two units). Things are going well, and I'm curious to know where you have your IPs in Adelaide??

Andrew.
 
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Reply: 1.1
From: David Gordon


Hi Andrew,

I have been closely monitoring the market on the western side of Adelaide - Mile End to Henley Beach.

Its just that it is quite difficult to aquire a property (house) in this area in competition with all the FHOG buyers and other investor purchasers. Prices have been pushed up to seemingly very high levels compared to achievable rental returns (for Adelaide).

For purchasers of property these high prices I have noticed that they are having considerably difficulty in renting them out - staying on the market for many weeks and having to drop the initial rental asked. "Rent negotiable" is becoming common in their adverts.

Perhaps I'm just looking in a narrow area but I can't help but wonder if this market is quite overheated and we have to correct back to realistic rental returns ??

Cheers

DaveG
 
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Reply: 1.1.1
From: Andrew G


Hi David,

I live in Modbury Heights, and have two IPs in Salisbury East. Both areas have shown growth although I'm not too bothered about growth - for me the rental return is more important.

I am more interested in areas around my own home just because I am more familiar with these areas. Perhaps I am thinking a little shallow, but I feel more comfortable dealing with these areas.

I'd be open to most places in Adelaide as the rent return does seem fairly good, but I must admit the last year has been pretty annoying for me because house prices are going up to the point where I think a lot are too expensive for what they're really worth, but the problem is, do I buy now knowing this, or do I wait a couple of years hoping there is some 'bottom' that opens up? Good to hear from another Adelaidian as well, there's not too many of us here!

Andrew.
 
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Sim

Administrator
Reply: 1.1.1.1
From: Sim' Hampel


Don't you believe it... there are heaps of Adeladeans here (sure I live in Sydney, but I'm still an Adeladean at heart) ;-)

I agree, rental yields for houses in Adelaide (particularly within 10km of the CBD) are at the lowest I've seen in the 4 years or so I've been looking at the market.

Most houses in the area I look at are selling at well below 5% yields right now, whereas 2 years ago 6-7% was the norm.

I have seen that the owner occupiers (OOs) are definately driving the market now. A couple of times I have been outbid by OOs when negotiating with an agent. It is almost impossible to compete with someone who is prepared to buy this dream house of theirs at whatever price, when I as an investor, am much more price sensitive.

Funnily enough, I haven't seen as much action lately from first home owners as there was last year. I think most who could afford to buy with the grant have done so already, and the rising prices have meant that many who waited can no longer afford to buy in the area I am looking in.

As for rental yields, all of my properties are in really high demand areas so I have had very little trouble getting my asking price and keeping them tenanted. From figures I saw a while back, vacancy rates are not too bad in Adelaide right now, but I do agree that increasing your rents to try and keep up with property values and improve your yields is going to lead to trouble. Especially when Joe Bloggs down the road is asking for less rent than you are for a similar property !

Unless the Adelaide market heats up even more and goes psycho like Melbourne has, I don't think it will drop back... but I do think it will stagnate for a while as rates rise. This is when rental yields will start to rise again in Adelaide. I look in the paper at the money people are asking for rents, and I'm really dissappointed that people are asking so little in some areas.

When you consider that I see adverts for 3BR houses in the outer northern suburbs (30km out) selling for $70K and renting for up to $150pw, then I see 3BR houses within 10km of the CBD renting for the same, but selling for $200K plus. Interesting huh ?

sim.gif
 
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