Over the past few years I’ve lost count of the number of times that property investors, (both locally and around South-East Asia), have asked me about the ongoing strength of the property rental market in Melbourne, not to mention around Australia.
Not surprisingly, one of the most common topics I’m asked about relates to how long the boom can continue. For several years I’ve found myself shrugging my shoulders and pointing out that it is showing no signs of slowing. However, the most recent data is suggesting that I may need to change my advice a little.
As some readers will be aware, the Melbourne rental market has remained a positive environment for investors in recent times, with the Corelogic rental index showing a growth in rents of around 7 per cent in the year to August 2024. However, within that figure is a slowing growth rate of just 0.8 per cent in the last three months of that year.
On a broader perspective, the national figure shows that after rental growth of 39 per cent between August 2020 and June 2024, the past couple of months have shown a distinct slowdown in this growth across the country. Indeed, there was a quarterly drop in Sydney, Hobart and Canberra.
So, what are we to make of these figures? Well, it’s hard to imagine a consistent drop in demand is at play here, despite the latest lending data showing an increase in the percentage of home lending going to first home buyers.
Far more likely, I suspect, is the inevitable impact of increased cost of living issues that we have been reading about throughout the past year or two. There are figures out there that suggest that a household on the current median income would be allocating over 32 per cent of their income to pay the median rent, the highest percentage recorded in over 20 years. The Reserve Bank also believes that average households are becoming larger as more people choose to share rather than live alone.
So what does this mean for investors? I would suggest that property owners might expect to see their rental income levelling out for a period of time, but given the timeless laws of supply and demand, it’s hard to see a sustained turn around taking place that would help renters to any large degree.
Of course, if you have any questions regarding your specific property portfolio, my team of rental specialists at Brand C and I are always happy to assist, so feel free to give us a call on 9807 6686.