Will Rents fall with current economic turmoil?

[Rockstar]

The very strategy that got the world into trouble (leveraging on cheap debt) is the stategy that will now be the safe option to ride out the next several years (once the initial asset deflation completes).

As long as you can get cheap credit?? Or any credit???

This is why am leaning towards holding onto the credit I have rather than selling off to cash up - not that I can sell off easily at present. Having a buffer of 3-4 yrs makes this possible for us.

If and when the inflation takes off then keep a close watch on IR movements. As soon as they head up again get into a long term fixed rate (if they let you) and let inflation deflate the debt.

Apart from that I am continuing to search for development opportunities to value add. Again this will be determined by the availability of credit.

 

[Dazz]

In these times in my opinion, bread and butter property is what will keep upright.

not fancy high end props..

I do not know what you mean by high end props, but in these times, what i call my high end props are certainly going to carry me through - cos they have high end tenants in there able to pay high end rents.

Do you own any high end props ??

My bread and butter props have bread and butter tenants in them who pay bread and butter rents. These are as weak as water.

Looks like our opinions differ Nathan.

 

[Trogdor]

I think Nathan is speaking of residential and Dazz commercial, which is apples and oranges.

In the commercial space, in such times bigger is better, whilst I wouldnt think that would be the case for resi!!

 

[wylie]

I read Nathan's post and thought his comment about high end properties meant high end residential properties, not commercial.

Plenty of high end residential properties for rent in Brisbane, $1,200 per week and more. I believe when things get tight these may well suffer falls in rent before the low to mid-range residential properties that rent for less than half that.

 

[BayView]

I read Nathan's post and thought his comment about high end properties meant high end residential properties, not commercial.

Plenty of high end residential properties for rent in Brisbane, $1,200 per week and more. I believe when things get tight these may well suffer falls in rent before the low to mid-range residential properties that rent for less than half that.

In resi, there is a way bigger pool of tenants and buyers for properties in the lowest 1/3rd of price range.

Therefore, there is more demand for them generally, so the prices and rents will tend not to fluctuate (drop) all that much; if at all.

(Please add "generalisation" disclaimer, and any other disclaimer pertaining to the inference that anything I say, do or think; might or might not be construed as professional advice, here....)

 

[Max Carnage]

Rents fell in most capital cities during the brief recession in the early 1990s. The coming period is going to be worse than that recession. Ergo, I expect rents to fall.

 

[weg]

Rents fell in most capital cities during the brief recession in the early 1990s. The coming period is going to be worse than that recession. Ergo, I expect rents to fall.

The yields we have now are nowhere near the high yields of the 80's and 90's. I can see housing softening but not rents.

Curious to know exactly why you think rents will drop? Do you think that vacancy rates drop in slow times and in recessions when less new housing becomes available and construction slows?

If anything yield remained high, even with the much higher unemployment and slower wage growth we experienced during those years.

Would like to see some stats of rents in that period if anyone has them. I could be wrong but I recall reading the % of household income going to rents was actually quite high from '90 to '94.

 

[Nathan]

LOL @ DAZ,

talking over inflated residential $400pw studios etc... houses @ 1200 in city locations

 

[Dis]

The yields we have now are nowhere near the high yields of the 80's and 90's. I can see housing softening but not rents.

Curious to know exactly why you think rents will drop? Do you think that vacancy rates drop in slow times and in recessions when less new housing becomes available and construction slows?

If anything yield remained high, even with the much higher unemployment and slower wage growth we experienced during those years.

Would like to see some stats of rents in that period if anyone has them. I could be wrong but I recall reading the % of household income going to rents was actually quite high from '90 to '94.

Personally I think rents in well located good basic resi IPs will rise.

However it is conceivable that if the recession is severe enough people will reconsider their living arangements and share more. Get a flat mate. Move back with the folks, etc.

 

[Max Carnage]

The yields we have now are nowhere near the high yields of the 80's and 90's. I can see housing softening but not rents.

Yields are irrelevant. The rents being paid today are almost to the cent the same as in the early 1990s, adjusted for wages. Low yields exist because speculators bid up the price of housing beyond fundamental value, not because the renters have more wriggle room.

Curious to know exactly why you think rents will drop? Do you think that vacancy rates drop in slow times and in recessions when less new housing becomes available and construction slows?

I believe that renters have less money to spend renting during a recession (or worse). It's that simple.

I forgot to add - the rental vacancy rate in Sydney was <1% just prior to the last recession.

 

[stumunro]

the early 90's recession was on the back of a global recession with high inflation.

The RBA made a mistake of having interest nearly double what they are today, and it absolutely destroyed any chance of stimulating the economy as sentiment was too far south.

Immigration was dried up, there was an oversupply of properties & unemployment was high.

There are pointed out similarities (yield & vacancy rates), but we have an RBA that still has that recession in their minds, and central banks ACROSS the world are reacting to what's is happening in the U.S by lowering interest rates and inflating economies.

It will be a massive balancing act, but fingers crossed monetary policy has learnt something from the Keating fiasco.

 

[ffc1883_1996]

Renters can and will pay a lot more for accomodation than the current discounted prices that they enjoy. The upwards rental correction that we’ve experienced over the last couple of years still has some way to go.

 

[Dazz]

Yields are irrelevant. The rents being paid today are almost to the cent the same as in the early 1990s, adjusted for wages. Low yields exist because speculators bid up the price of housing beyond fundamental value, not because the renters have more wriggle room.

You speak with such alacrity concerning "the market" and "rents".....such definition and certainly over such a broad and differing gaggle of property titles.

I forgot to add - the rental vacancy rate in Sydney was <1% just prior to the last recession.

Ah - you're only talking about Sydney residential. I see now. Even that is a very broad brush to paint with, that it distorts the real picture grossly.

To try and extend that canvas to other cities and all other types of properties with your over-arching statements is pure folly.

I can confirm yields are going through the roof for my little patch, as have capital values....and continue to, and the tenants don't even sneeze at the suggestion of a doubling in rents, as their incomes are tripling and quadrupling.

Not everyone invests in 3x1's in Blacktown or Rooty Hill.

 

[BayView]

I can confirm yields are going through the roof for my little patch, as have capital values....and continue to, and the tenants don't even sneeze at the suggestion of a doubling in rents, as their incomes are tripling and quadrupling.

Is this relating to commercial or resi Dazz?

Two entirely different kettles of fish.

But I do agree with you that it is all a bit "micro markets". We are still enjoying rent increases and some cap growth for our resi portfolio.

I don't know whether it will last much longer, or it may continue, but it's definitely not going backwards as I write and drink.

Sorry; as I drink and write.

Sorry; as I drink, drink and write.

 

[Dazz]

Both matey....and I wouldn't agree that they are two totally different kettles.

They all sit on a block of dirt.
They all have a title deed.
They all get financed by a Bank.
They all get bought with a contract of sale.
They all produce income.
They all have a Lease.
They all have tenants that like to bleat when you up the rent on 'em.

Come to think of it - bugger all differences.

 

[weg]

Yields are irrelevant. The rents being paid today are almost to the cent the same as in the early 1990s, adjusted for wages. Low yields exist because speculators bid up the price of housing beyond fundamental value, not because the renters have more wriggle room.

I believe that renters have less money to spend renting during a recession (or worse). It's that simple.

I forgot to add - the rental vacancy rate in Sydney was <1% just prior to the last recession.

http://www.abs.gov.au/AUSSTATS/[email protected]!OpenDocument

Housing Costs: Low income private renters

In 1990, low income private renter families spent 36% of their incomes on rent. By 1994, this had increased to 42%.




Even if the price of homes went backward for a time during that period (increasing yield) I doubt if rents went back significantly.

Even back in the early '80's when I bought my first IP some renters were paying more than the cost of the mortgage on the home they were renting, and they didn't blink an eyelid .

I stick to my belief that rents are based very much so on supply and demand. If someone can't afford to pay say $350pw rent anymore, then they move somewhere smaller or further out and pay $250pw. It's that simple.

 

[BoatBoy]

http://www.abs.gov.au/AUSSTATS/[email protected]/2f762f95845417aeca25706c00834efa/3f3713ce7bf1578cca2570ec007530a7!OpenDocument

Housing Costs: Low income private renters

In 1990, low income private renter families spent 36% of their incomes on rent. By 1994, this had increased to 42%.




Even if the price of homes went backward for a time during that period (increasing yield) I doubt if rents went back significantly.

Even back in the early '80's when I bought my first IP some renters were paying more than the cost of the mortgage on the home they were renting, and they didn't blink an eyelid .

I stick to my belief that rents are based very much so on supply and demand. If someone can't afford to pay say $350pw rent anymore, then they move somewhere smaller or further out and pay $250pw. It's that simple.

I tend to agree, though moving further out is not really an option unless you have work and facilities near by or live near public transport so as not to drive.

Fuel could be a big extra cost.

Dave

 

[weg]

I tend to agree, though moving further out is not really an option unless you have work and facilities near by or live near public transport so as not to drive.

Fuel could be a big extra cost.

Dave

Sometimes moving further out is only a suburb or two away.

Rents start at about $330pw for a very modest home where I live, but only 5min down the road an similar house could be found for around $260.

Those that have rented a luxury home may need to move to a more modest one.

That was more my point.

 

[Aaron Sice]

*drum roll*

for the umpteenth time, CG and rental yield will continue to improve in strategically located IPs - or areas with good fundamentals.

if the economy tanks, the demand for a rental close to transport / shops / schools etc will increase as people look to reduce reliance on vehicles.

inflation alone will put pressure on the roll-on effect of rent rises.

funny how inflation IMPROVES our CG and yield, but reduces what we can buy / leverage with it.

 

[BoatBoy]

Sometimes moving further out is only a suburb or two away.

Rents start at about $330pw for a very modest home where I live, but only 5min down the road an similar house could be found for around $260.

Those that have rented a luxury home may need to move to a more modest one.

That was more my point.

Bring it on (being a modest home owner)



Dave