Knowledge Hub

Matthew Hughes, Managing Director at Capital Property Advisory

November 10, 2020

 

Back in June, we presented a case for cautious optimism in the Perth property market.

All indicators are that this case is becoming ever more sound, led with gusto by a rental market boasting near-zero vacancy levels and showing promise of future growth in rental returns.

September quarter rental market data delivered a vacancy rate of 0.9% against 2% vacancy at the end of June, and 2.5% a year ago. On 1 November, there were 2,784 properties listed for rent compared to 5,904 on the same date in 2019 – less than half the number of properties available.

Ordinarily, when vacancy rates are so low, rents could be expected to rise markedly as competition increases. However, under current COVID-19 legislation, rents cannot rise while an existing tenant is in a property, even when the lease comes up for renewal. Prices can only increase when there is a changeover in tenancy, and landlords cannot ask a tenant to leave.

REIWA has announced that rents are already rising by at least 10 per cent when new tenants are signing on the dotted line. It is because of this – and lack of supply – that many current tenants are staying put when their lease comes up for renewal, under the protection of the temporary legislation.

However, when the COVID-19 moratorium ceases in March 2021, landlords can ask tenants to leave or increase rents upon lease renewal, and it is projected that this may trigger a jump in rents of up to 20 per cent – not so good for tenants, but great news for investors and owners.

A number of factors contribute to signs of a tight rental market for some time to come. While we expect a number of tenants to move into their own homes, once built, as a result of government grants, this is likely to be offset by people returning to Perth now that our hard border has opened, seeking to secure rental properties.

The flow-on effect of a buoyant rental market is, as always, a potential growth in property prices. In Perth, this is coupled with a lack of supply over the past six months, as people held off selling and moving during the uncertainty of COVID-19.

As we look to the future more positively, established suburbs are selling quickly, often above asking price, with average time on market only 30 days – the lowest it has been for more than five years (see graph below). In the last week of October, 933 properties sold across Perth, compared to only 609 in the same week of 2019. CoreLogic confirmed a price increase across the board of 0.6% in October.

Many analysts predict that Perth is expected to outperform all other capital cities over the next three years.

If you would like more information on opportunities that exist for investors in the current market, please contact us today.