NSW Sydney rental boom cycles

They certainly were - yields have been in long term decline since the late 1980's...

The question is Why ? Was it undersupply of rentals, increase in popln growth, good economic conditions (eg people being able to afford moving out of parents/shared house). It's simplistic to assert that just because it happened last time, it'll happen again.

Currently, there is a higher than usual additional supply happening, popln growth is a little lower than usual, employment is stable, but a little higher than most would like.... (and a lot of investors have bought IP so rental supply is higher than usual). So on balance, it would be easy to expect rents to be soft in the short term.

However, in the longer term, the RBA & APRA & media (scary NG CGT storys) are discouraging IP investment & popln growth will continue, so it's possible that over the next 15 years, we'll see a long term increase in yields. Maybe even back to 1990s levels.... and the next generation will look back & say how lucky we were to have such low rents & be able to save a deposit so easily .

 

Time will reveal all...the fact this is documented here is great so we can reflect in another year..2 and 3 years down the track.

I got the same reaction when I said that Sydney would have the mother of all booms. The supply in the pipeline is quite large....in some areas. Mostly units...and the immigration rates are down.....

 

That is correct. The supply in Western Sydney and other parts is huge. If people have options around shiny new apartments...they might be preferred to older houses. Time will tell...but I think apartment living will be norm in the future.

The NSW govt is making it much easier to develop..including new planning laws that favor developers to increase supply. Watch this space.

Keith you are spot on about supply in Sydney....just driving around the suburbs clearly shows the amount of building going on. As I said earlier....these new apartments recently have been investor driven. When the fully supply comes in the next 2-3 years...it should put a dampner on rents. Also the population growth has slowed down considerably....this will show particularly in the unit market rents.

 

It's like the price booms. People ask why all of a sudden prices double in a couple of years. So it is with rents. Neither are a gradual incline.
In 2010 prices had been flat for a while, people started to enter the market. Yields were fantastic due to the lack of CG since the end of the 2003 boom. When yields are high investors are attracted. Lots of activity, newly renovated properties coming on the market. When I advertised my newly renovated properties I had the pick of tenants. Prices started to rise (buy prices and rents).
Then rent prices levelled out again as renters started buying instead.
Now yields are low because buy prices are so high.
It's like a see-saw, sometimes buy prices boom, then rents boom. But they like being in equilibrium so I think it's rents turn to push off.

 

The last boom was bigger. Maybe this one isn't as finished as we think it is? Or we could call this the daughter boom.

 

Which one....the one 1988 or early 2000s???

Depends on which location....this time parts of Western Sydney increased over 200%...

 

2000's. I wasn't in the game in the 80's.

Western Sydney was bigger last time too than this time, also the boom was wider spread. Regionals in NSW (outside Newcastle/Gong/CC) did really well last time. This time practically nothing.

 

200%? Holy moly. Where?

 

200% is doubling of price.

Places like Mt Druitt....lets say you bought a house for 235k ( I have used this figure as Skater and Travelbug will get angry if I say you could have bought under 200k around 2009 -2010). That would have gone to around high fours to low fives.

Punchbowl....you could have bought for 180k for 2 brm units ...now more like 360-400k.

 

Before apartment living becomes norm in the future, OC fees really need to be regulated. They are way too high.

 

Don't think that is going to happen...lots of developers have now set-up companies to get profits on that angle also. The strata rates on some new developments are ridiculously high.

 

I thought 100% was doubling of price?

 

If you are referring to a 100% increase, then yes. The only way 200% can represent a doubling of price is to say that the new price is 200% of the original (100%) ie. a 100% increase. A 200% increase, as sash originally stated, is actually a tripling in price.

 

I am aware that there is a lot of supply in the pipeline, and that this will have an affect on some markets, however most units are only one or two bedroom.

No matter what, you will always have those that want/need more rooms. Those that prefer houses to units, and those that WANT to live in Mt Druitt that does not have an oversupply on it's way.

The thing that a lot of City & especially North Shore people don't understand is that there are people who want to live out this way, and it's not just because they can find a cheap house or that they are derros. There are plenty of very nice, normal people that actually WANT to live out here.

 

100% increase in price is doubling. And yes, prices DID double. If you bought well, they did even better, like mine....but I bought well before 2009-2010.

 

Correct!

 

Skate...please none of this City vs North Shore people business.

This has nothing to slag off the people who are living in those suburbs and yes people do want to live there otherwise there would be no market...but more about the investors (and yes some may live on the North Shore or City) who jumped in expecting that the prices will continue to move up or stabilize. The market in the Druie has a cycle...and pushing up rents constantly can't be sustained.

At some point...the rents can't go higher...but interest rates will go higher. And as we are now seeing a lot of supply is coming onto the market. You are fortunate your market timing of your sales were spot on....but the others who waited may not be as fortunate but will still make very good profits....but in 18-24mths down the line...it will be patching based on when in the cycle you bought.

Dast is all i am saying.....

 

LOL! I hear it all the time. You know, there are some extraordinarily wealthy people who choose to live out here, as well as a lot on high incomes, then you get those on more normal incomes.....and some others that the rest of us would prefer move away.
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But that is normal. You always get people who buy at the tail end of a boom, and they will usually be the ones who learn a very expensive lesson. There's not a lot we can do to help them.

Interest rates will go higher, that is a given. Rents will also creep higher, no matter where your properties are. Nothing stays the same. And yes, I was quite happy with the timing of my properties.

 

Well I think there is some synergy now.....in our thinking....

I look forward to the bargains in Sydney when they appear....

But that is normal. You always get people who buy at the tail end of a boom, and they will usually be the ones who learn a very expensive lesson. There's not a lot we can do to help them.

Interest rates will go higher, that is a given. Rents will also creep higher, no matter where your properties are. Nothing stays the same. And yes, I was quite happy with the timing of my properties.[/QUOTE]

 

This chart explains those @keithj posted.



It's about two years out of date, but up until 2007 it looks at though rents tracked CPI, and growth has been a bit faster since then. The fall in yields is because house prices have, in real terms, nearly tripled.

Keith's chart, "Rental Growth and Vacancy Rate" shows a sharp fall off in inflation during the late eighties and early nineties. The drop in CPI means wage increases will have been subdued, and hence tenants can't pay so much.

I'm not sure that rents could double to restore the traditional yields. There are limits to what people can afford to pay, and whilst tenants can consume less property (e.g. going from a whole apartment down to a room in a share house), at some point there's going to be a hard limit.