NSW Sydney rental boom cycles

Hi all!

Looking back to the pre-Sydney boom days, yields in Sydney were great/much better than what they are today.

Talking to some of the other investors at the PC meetup , I understand that during the last rental boom, rentals went up literally overnight.

I know there are supply vs demand factors at play. For those of you who have seen the rental boom before following the Sydney capital growth boom, keen to understand how this plays out.

thanks!
monalisa

 

It is an easy play.
RY are at 6%
PIs buy for RY
Prices rise
RY as a % of new prices paid fall back to 5, 4.5, 4 & 3.5% as the price boom continues
PIs stop buying as much
Prices stagnate or fall a little
LL start to raise rents as they can
RY eventually heads back towards 6% again
PIs buy for RY
lather, rinse & repeat

 

I liken it to a see-saw. One one end sits property prices and on the other sits rental yield. The boom is a see saw with prices at top and yield at bottom, as prices drop yields will increase due to less rental stock (less investors + investors selling off stock at boom peak) and more demand pushing rents up.

Rinse repeat

 

Rents seemed to jump up considerably at the end of 2011 (in the west anyway).
We had just put all of ours up around July/Aug. We put one up to $365pw and a friend bought and renovated a house and had it advertised for $380 with my same agent. I thought it couldn't be right so rang the agent. She said yes I could get $390 for mine if I was advertising it now.
They actually didn't move much for the next few years, so when they start jumping up move them then because then it flattens out again.
I have only put them up $10 since then so waiting patiently for the next rental price boom.

 

Isn't it all to do with interest rates more or less? Interest rates going up - rents go up to help paying mortgage repayments, prices go down as ii gets more expensive to hold = increasing yields

 

Rent increases rarely (fully) cover interest rate rises.

From recollection, the last notable spike in rents in Sydney took place just before the GFC when interest rates were heading to 9%. But a meagre 5%-10% increase in rent can't compete with successive rate rises.

For me personally, the GFC was a godsend - things were getting quite hairy from a serviceability perspective just prior to and it was a scary time (not knowing how high rates were gonna go).

 

Depending on the suburb...the rental average for Sydney should be around 3.5-6.5%.

3-4% will be the better suburbs
4-5.5% will be the mid suburbs
5.5-6.5% will be more the lower end.

To calculate what the property's intrinsic value should be ...you simply multiply the rent by 52 (weeks) and divide it by the expect typical return.

Lets say you have a house in the Druie...rented for a typical $370pw...you simply multiply that by 52 and divide it by 6.5% (gross yield typical for this suburbs in a normal market).

That means that particular house should be worth $305k.

 

Good thread. Rent rises, yay! How lomg do we have to wait in Sydney? A year?
How 'bout Melbourne? Stock still moving there.

 

It wasn't during the boom, it was a few years AFTER the boom.

Not at all! It's all supply and demand! More rental stock available, rents will stagnate or even fall back. When there's not much rentals available in the area, prices go up. So....in times when all the investors are out buying (boom times) there's a lot of rentals available, you could see your rents drop. Later on, when prices stagnate, there's little investor activity, meaning not enough rental stock on the market, rental prices rise.

It all depends on where your property is. Inner City, with an influx of OTP still to hit the market, it could still be a long way off.

Things in the West are a little different to last time though. Last time I had a few extended vacancies, and had to drop rents. This time around, I think there's just more people moving to the area, maybe being priced out of other areas? Maybe due to all the new industrial areas around Erskine Park? I'm not sure what it is, but rents have stayed stable, and I just put the rent up on all my remaining Sydney properties. Not a lot, only $10-$15 each.

 

Agree with you skater. I think rents this time out West will also take a hammering...one of the reasons is that that there is so much OTP plan supply in areas closer to the city....the rents in these areas will make it attractive to rent there...so people will move there. Thus reducing demand in areas in some parts of the West.

Just the supply on areas like Ryde, South Sydney, and Parramatta is huge!

 

My PM suggested putting the rent up a few months ago but tenant had counter argument so I let it go for now. On reflection, it didn't seem a good time.
Now looking at the OTPs on the market and current asking rents, skater's words ring true. In fact, some rents look like they're going down. That's Harris Park.
That's going to make it a little harder for investors to hold. Not too much mortgage stress in that area though as buy-in has always been cheap as chips.

 

We need a go to 'let's hype the Sydney rental market' thread. Not that I invest here - let's make it a Brisbane one.

 

Yep.

But think opposite to the Lemmings (errr Specufesters out there).....one way to do it is put the property down 10-20pw below others and lock them in for 12 months. It is thinking ahead...there will be much turmoil in the next 6-12 months...but it will settle.

 

There's West & there's West. When I talk West, I'm usually referring to my own stomping ground, not Harris Park/Parramatta.

I think you are wrong to suggest rents will take a hammering in MY area, but correct closer to Parramatta. I've already put rents up recently.

 

This time seems to be a little different than last time. Rents have not dropped as last time in 03/04 boom. It has increased for the last, say, 6 month, at least in areas I am familiar with. Does it mean the current "micro correction" will be short lived ???

 

I think your area has had a chemical reaction this time 'round. No going back now.
I also think Parra/Harris Park is seen differently now but the OTPs will make for interesting times. Something tells me it's just the tip of the iceberg there.

 

6 months ago the agent for my Willmot place suggested a rent review, I had a look and said no way for the new rental amount they could get a house that had paint and floor coverings and all that fancy stuff where they couldnt just live in squalor.

So i left the rent as is, they continue to pay like clockwork, and the cash rolls in, no renovation required.

 

Hehe, my Willmot one is ugly & original. Just put the rent up another $10.

 

Hmm i'm not so sure i buy into the past as an indicator of the future for rental prices, particularly in Sydney.

Rental prices are linked to supply figures that come out. One of the better indicators for this is dwelling constructions in Sydney. Interest rates do play a part, but its an indirect effect as it shifts the levers of demand/supply, which than impact rental prices.

The last cycle of rent rises were in a period of a severe supply constraint in the Sydney market. Now, with dwellings going up all over Sydney and an infrastructure boom, i'd suspect rental price growth won't go near the numbers seen in the last rental boom. There'll be a lag effect as the dwellings come online, but over the next few years with highrises and large developments going in pockets of Sydney, i wouldn't be expecting a rental price boom (if anything, closer to the opposite). Renters of Sydney may have things go their way for a little while for a few years.

 

OK, so I was out all day with the Ipad & couldn't post what I really wanted to say.

Should be? In who's eyes?

This is kind of sounding like 'rental reality' to me. And I never agreed with the person that spouted that either.

The average yield for a suburb is not a stable being. It has changed over time. I remember when yields on average were around 7% in most of Sydney and up to 10% in Mt Druitt & Campbelltown.

The fact is that times have changed. Firstly internet makes it easier to search and find properties with better yields....so as more people do this, more investors buy there, and the yields drop. Now we have interest rates at the lowest they've been, so investors are happy to buy and accept an even lower yielding property.

Again, this is in your view only!

By the time that prices pull back, rents will also be moving up, so that's going to skew your 'intrinsic value' somewhat.

By your assumptions, something with a nice shiny new GF renting for a similar amount as the house, will be worth double the price of a freestanding home.