Rents tipped to rise in 2010

National rental growth has remained flat for a third consecutive quarter, but the outlook for the rest of the year is positive due to low vacancy rates and the improving domestic economy, a new report from Australian Property Monitors reveals.

The latest APM rental series report shows 2009 produced the lowest annual rate of rental growth since 2002, with Sydney, Melbourne and Brisbane recording zero growth in median rent prices.

In comparing the September and December quarters, median weekly asking rent prices for houses increased in Sydney, Melbourne, Brisbane, Hobart and Darwin by 0%. The highest increase was in Canberra at 4.8%, followed by Adelaide at 3.2% and Perth at 2.9%.

The median weekly asking rent prices for units increased by 0% in Melbourne, Brisbane, Perth and Canberra. Darwin prices increased by 13.6%, followed by 4.3% in Hobart, 2% in Adelaide and 1.2% in Sydney.

Rental yields for houses actually decreased in the quarter-on-quarter period by 0.2% in Melbourne, 0.3% in Brisbane and 1.9% in Canberra. Yields increased in Sydney by 2.3%, Adelaide by 0.6%, Perth by 1.2%, Hobart by 5.1% and Darwin by 4.2%.

For units, Melbourne and Brisbane fell by 0.3% and 0.7% respectively. Sydney increased by 2.2%, Adelaide by 4.9%, Hobart by 2.6%, Darwin by 0.7% and Canberra by 1%. Perth recorded no growth.

APM economist Matthew Bell says in the report rents remained flat during the December quarter, with 2009 being the weakest year for national rental growth since 2002 with just a 2% increase, “well down from the average rate of 12% for 2007-08”.

“With trend unemployment falling for the first time in November (but not reported until December), employment uncertainty remained during the majority of the December quarter, reigning in the ability of renters to agree to rental increases. Strong first home owner activity during the quarter, even after the phased expiry of the first home owner boost at the end of September, also relieved some of the pressure on rental markets.”

However, Bell also said December is likely to be the last quarter of flat rental growth, with the improving employment outlook meaning renters will be more willing and able to afford rental increases.

Additionally, he says the expiration of the extended first home owners grant, along with strong house price growth, will mean more people will continue renting rather than make the move to buying a house in 2010.

“On the supply side, there simply aren’t enough new properties being built for investment purposes to meet this increased demand. Increased costs for landlords in the form of rising interest rates and rising land taxes due to increasing land values, should mean that asking rents will start to increase steadily throughout 2010.”

Bell predicts Sydney rents to increase by at least 10%, approaching the $500 per week level, while Melbourne rents are expected to increase by about 5-7%.

Brisbane and Perth are expected to perform much better than the rest of the country. Brisbane will see rate increases of about 8% to an average of $400, while Perth should record a rise of 11% to $400.

But the news isn’t so good for yields, with Bell saying capital values of houses and units recovered strongly from January 2009 lows, with asking rents growing at lower rates.

“While rents are forecast to increase throughout 2010, the outlook for house price growth is also strong, meaning that yields that hit their peak in March 2009 are unlikely to move very far in 2010.”