Independent Property Group Managing Director of Property Management Hannah Gill

High Prices and Low Supply Leaves Canberra’s Rental Market Feeling the Heat in 2019.

The Australian property market is a topic on par with the scorching summer days our country has been enduring — it’s hot.  The Canberra rental market, in particular, has had a spotlight shone on it. It’s now regarded as having the highest weekly asking rents nationwide. According to the Domain Rental Report for the December quarter, the median weekly asking rent for houses in the capital jumped to an average of $560 per week, in comparison to $540 in Sydney.

So, what does it all mean for local investors and tenants? We speak to Hannah Gill, Managing Director of Independent Property Management, to find out why Canberra is experiencing an exceptionally tight marketplace.

What has the rental market been like in Canberra?

In a nutshell, the Canberra market is crazy. It’s exceptionally tight, especially as we now have the highest weekly asking rents in the country. This is significant because Sydney and Melbourne are normally the ones to claim this title, so it’s been unusual to see Canberra ranked as the most expensive city to rent. We’re also still seeing very little vacancy, which is a trend we’ve witnessed over the last 18 months. This high demand and low supply of stock results is effectively driving up the price of rent.

Noticeably, the available stock is limited to predominately apartments, although even the availability of these is significantly lower than they were 3 – 4 years ago. Houses and townhouses are in really short supply. We need more varied supply in Canberra. This variety is critical as some families will want to be in certain school catchment zones, and some tenants need a backyard for pets. We’ve witnessed a huge drop off in house investment purchases and are now seeing investors mostly buying apartments, so that becomes what’s available to renters. But a one bedroom apartment in Turner doesn’t suit everyone.

When apartments are being finalised, they are renting really well. But it’s only for a short period that we have that relief and once they’re rented out, we’re back to more demand than the market can cater for. And if someone is renting a house they are less inclined to move because it’s hard to find another house – so there’s simply no turnover of stock at the moment.

Do you see change coming to the local marketplace? 

It’s cyclical. We’ve seen the market performing brilliantly previously, before bottoming out after a while. For the short term, unless there’s a significant change to supply and changes to requirements for investors, I don’t see it changing quickly.

Right now, investors are contending with proposed changes to the ACT legislation that may be detrimental and have unintended consequences should they come into effect.  It’s likely going to mean more investors are taken out of the market, decreasing supply even further and driving up rental prices. Factor in the annual increase of land tax and we’re seeing investors with established homes on large blocks leaving the market.

Then there’s the much talked about Royal Commission. Interest only loans are rolling over into interest and principal loans, making mortgage payments higher. There is a risk it will force investors to leave the market as they cannot afford to meet repayments. The potential loss of negative gearing is another threat.

Investors need confidence and clarity to remain in the market. Right now they are fearful of what could happen and the impact this will have for them. With a number of factors unresolved, it could be the perfect storm.

 

What does this current marketplace mean for Canberra landlords?

 

Although we are witnessing a decline in the number of investors in Canberra, we still believe it’s a great time to own a rental property. They’re receiving higher returns and experiencing stability with tenants. And while there are concerns about legislation changes that could negatively impact landlords, we believe the current marketplace is definitely in their favour.

 

What are these proposed legislative changes which could impact landlords?

 

There are a whole series of changes proposed, which sound fair and reasonable if you look at them holistically. However, if you drill down, there are some concerns around unintended consequences which may negatively impact both the owner and tenant. Changes include limiting rent increases by CPI and allowing pets in all properties. Now, it’s not a bad thing to have pets in a rental property, plenty of great tenants do, but it needs to be a two-sided conversation. For example: ‘Can we take a pet bond? Do insurance policies adequately protect the investor for pet damage?’ We need to make sure it is fair and reasonable for all parties.

 

How are tenants coping in this current marketplace?

 

Renters who are after something other than an apartment are having a hard time of it. They’re facing high levels of stress and are often offering above advertised amounts just to secure a home.

 

It’s a tough time because it’s expensive and there is not the diversity of stock that Canberra wants or needs. It’s fine if you earn good money and want to live in the city in a one-bedroom. However families, people with pets and those in shared houses or student groups are definitely experiencing a challenging time.

 

What is in store for Canberra’s rental property market in 2019?

 

We’ll see much conversation centre on the reform of the rental industry. In the media, we’ve heard from a number of tenancy advocacy groups lobbying for change. Victoria and NSW have already gone through these debates and its really started to drive the conversation here in our nation’s capital. I suspect it will continue to be a hot topic throughout the year.

 

 

So, while we can be certain the subject of the property market will remain heated across the country, in Canberra, we can only hope for more varied supply for our tenants. This will give them far more choice, making them happy ­­— and more likely to stay in the same tenancy ­— which in turn will leave landlords happy. We will be watching this space closely to see what unfolds as we move further into 2019.

 

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