House prices may be flat but you can bet on rent rises

[Propertunity]

Just to keep it real - its good to remember that for most properties you need a 10% increase in rent, to negate a 0.5% decline in value. So, for a 5% decline in value, one would need rents to double.

That may be true, but I don't know of any investor who would look to rental income to make up the shortfall of a "paper loss" on an asset's capital value

I think you'll find they just ride the cycle up (and down) without worrying too much about the month to month valuation on an IP.

 

[investor2009]

Darwin is not any more expensive than any other capital city, some think it should be cheaper but why would that be?

Bottom line is, there is very limited supply of land release and the NT Government openly admit that they won't release an oversupply of land as that would run the risk of devaluating residents property.

So supply and demand, same as any other city is why Darwin sits with most other Capital cities. Simple. Ans once this giant blows into town we need to house at least a further 5000 people, but where to put them in an already tight rental market?

I've also got another $90 coming my way from my Sydney properties.

On Darwin, I just don't get it. Why is the median price there almost as high as Melbourne and Sydney? Never been there, but from Google Maps, it looks like you're in open country after driving west from the city for 15 mins.

 

[HappyCamper]

Bottom line is, there is very limited supply of land release and the NT Government openly admit that they won't release an oversupply of land as that would run the risk of devaluating residents property.

Sounds like an artificial market to me. The land is all there but the government doesn't want to release it to maintain the high property prices? Not my cup of tea.

 

[investor2009]

Lol. O.k I'm not sure if you're deliberately going about things in an attempt to be ignorrant, or you genuinely believe Darwin is a little country town where crocodiles roam the streets along with Kangaroos.

All it comes down to is property has doubled for me every 5 years and with rental yields the highest of any capital city within Australia, it costs me nothing to hold property from day one so there is no risk factor even if I thought growth may be limited into the future, which is quite the opposite of what I've experienced and believe.

The Darwin workforce also has a much higher percentage of highly skilled/highly paid workers per head to add to growth factors there.
Being on the ground in Darwin at least 3-4 times per year I've watched it grow the past 3 years to an unimaginable (to me) size and there really is no more inner land left to build on. Smart developers have lapped it all up.
Next suburb is being built in Palmesrton (25kms from city) and further out with house blocks of around 500sq metres and no back-yard. Older houses with the typical 800-1000sq metre blocks are in demand and will certainly be into the future. Can still be had for good prices in Bakewell area, which is an excellent suburb.

Sounds like an artificial market to me. The land is all there but the government doesn't want to release it to maintain the high property prices? Not my cup of tea.

 

[bene313]

Sounds like an artificial market to me. The land is all there but the government doesn't want to release it to maintain the high property prices? Not my cup of tea.

Are you saying you wouldn't buy in Karratha in 1991 for 90k if you had the chance? That same property would now be paying 90k pa.

Not sure the release of land has much to do with sustaining property prices. Probably more to do with town planning, community development, availability of infrastructure, provision of services...

The supply of property near the CBD or coast is also restrained by government regulation. Consider zoning, building height/story restriction, restrictions on number of units per development, block sizes, heritage listing, etc.

 

[JustRent]

We are continuing to see low vacancies (generally 0-1 week), regular rental increases and plenty of demand from tenants. The inner west Sydney market is certainly very tight.

 

[james_w]

But eventually rates will drop. Loan repayments will drop and hang on. Rents stay up.....

Can't wait for that part of cycle

 

[investor2009]

Yep, it'll come around sooner than we think.
It seems like not that long ago I forked out my first deposit.

 

[sash]

Well...it maybe your Xmas present for the new year.

Prices are settling fast....rents are going up....looks like 2011 will be pearler from a buying perspective.

Yep, it'll come around sooner than we think.
It seems like not that long ago I forked out my first deposit.

 

[ashalim]

Tell that to the Chinese buyers in the Kogarah area to drive up prices so I can unlock MORE equity AND increase rent at the same time

Well...it maybe your Xmas present for the new year.

Prices are settling fast....rents are going up....looks like 2011 will be pearler from a buying perspective.

 

[Ed Barton]

the older investors here, and in fact the older renters will remember the days when offers were made on a rental and it was mostly accepted. rent increases did not happen for years. are you prepared for this?

 

[BV]

the older investors here, and in fact the older renters will remember the days when offers were made on a rental and it was mostly accepted. rent increases did not happen for years. are you prepared for this?

I'm prepared although it won't happen again because we won't have an oversupply.
Last time we had an oversupply of rentals in 2004? I was lucky and didn't have any long vacancies but I remember some properties were giving 2 weeks free rent.

 

[eternit]

the older investors here, and in fact the older renters will remember the days when offers were made on a rental and it was mostly accepted. rent increases did not happen for years. are you prepared for this?

Oversupply for rental properties happen after there is a lot of buying activity hence pushing up house prices hence huge capital gains.

This is because once a lot of properties have been sold there are less renters on the market then more investment properties.

I would happy trade an oversupply for rental properties for huge capital gains anyday....................................

Either way you look at it property owners are well off

 

[skater]

the older investors here, and in fact the older renters will remember the days when offers were made on a rental and it was mostly accepted. rent increases did not happen for years. are you prepared for this?

That's all part of the cycle. It doesn't mean that we can't make hay while rents are on an upward trend. They do have to stop sometime, but I can't see that happening just yet.

 

[Ed Barton]

That's all part of the cycle. It doesn't mean that we can't make hay while rents are on an upward trend. They do have to stop sometime, but I can't see that happening just yet.

if BV is correct about the timing of the last oversupply of rentals and it's cyclical then aren't we approaching that part of the cycle soon? of course soon could be a couple of years away.

of course keep making hay.

 

[skater]

Ed, I think it all depends on which part of Australia you are investing in. I'm not sure what is happening in QLD, but in Western/South Western Sydney, where most of my stuff is, I feel that we have a while to go before any great increases in CG. While we are waiting for that CG, rents will continue to be strong as there really isn't a lot of new stuff coming onto the market.

I'm predicting maybe another 1% increase in yeilds before some of the tenants realise that they can purchase for similar or even less than they are paying in rent. When that starts to happen, the CG will come.

 

[bluestorm]

I'm predicting maybe another 1% increase in yeilds before some of the tenants realise that they can purchase for similar or even less than they are paying in rent. When that starts to happen, the CG will come.

Not when interest rates continue to rise next year.

 

[The Fence]

Not when interest rates continue to rise next year.

Well then rents will continue to soar...

 

[bluestorm]

Well then rents will continue to soar...

Rents may go up a bit, but to suggest like skater that this will lead to another CG surge, is nonsense.
Not when unemployment and interest rates risesthrough next year.
The argument of shortage was used in every other country as well.

And then the financial market have another heart attack when Alt-A's peak in 2nd half of 2011 (I'll openly predict another crash on Sep/Oct 2011). But that's another thing.

 

[evand]

Most renters cant qualify for loans. Thats why they rent. Even if they're paying more in rent than they would in a mortgage.

Certainly the numbers aren't big enough to move the market as you're suggesting. I'd like to know where the basis of this assumption comes from?

I'm predicting maybe another 1% increase in yeilds before some of the tenants realise that they can purchase for similar or even less than they are paying in rent. When that starts to happen, the CG will come.