Today, we thought we would dive into some of the factors that are making property investment an attractive proposition, so landlords can determine whether now is a good time to enter (or re-enter) the market…
There’s no denying that Australia is in the grip of a rental crisis. The supply of rentals is not keeping pace with demand. Governments, the property industry, charities and others are calling for ways to address the shortfall. One solution is increasing the number of rentals. Which means the market needs more investors. But is it a good time to buy investment property?
According to some property experts, the current rental market – with high demand and limited supply – is ideal for new investors.
Let’s delve deeper…
According to SQM Research, the national rental vacancy rate was 1.0 per cent in January and February 2023 – with just 32,000 properties across the nation available for rent.
Data from Domain showed that in February, there were 36.1 per cent fewer vacant rental properties compared to the same time last year.
PropTrack notes that the current vacancy rate is almost half the level seen before the pandemic and the lowest level since late 2018. PropTrack’s Rental Report for December 2022 also showed that the median time a rental remained on realestate.com.au was just 18 days.
The lack of vacancies also coincides with declining new building construction. ABS figures show building approvals in January were at their lowest levels in more than a decade, with the number of dwellings approved falling -27.6 per cent (houses were down -13.8 per cent, while other dwellings were down -40.8 per cent).
There is also increasing demand for both city and rural locations, with rising immigration numbers (AFR reports there was an unexpected gain of 191,00 foreign migrants last year and higher immigration forecasts this year) as well as an influx of foreign students (SBS reports more than 40,000 Chinese students alone are returning to Australia to study this year). The Federal Budget projected a net overseas migration of 235,000 for the years 2022-23 and 2023-24. However, recent data on net permanent and long-term arrivals indicate a faster-than-expected rebound from the COVID-induced lows. This suggests that net migration could surpass treasury forecasts and reach record levels, according to PropTrack.
This high demand and low supply comes at a time when property prices are beginning to stabilise and, in some cases, fall.
Ray White notes capital city house prices were down -6.1 per cent in February 2023 from their peak in March 2022.
February also saw an uptick in the number of properties being listed for sale – with PropTrack noting national new listings were up 24.8 per cent over the month, with new listings in capital cities even stronger – up 26.6 per cent.
Rents are also rising – with PropTrack data showing national house rents rose 13 per cent YOY in January 2023, while unit rents rose 12 per cent.
The bottom line
With all the key elements in place – record low vacancies, high demand, softening house prices, strong rental price growth – today’s market may be an ideal time for new investors in a sound financial position to enter the market.
According to John McGrath, CEO of McGrath Estate Agents, the next stage of the market will be a consolidation, featuring a plateauing of prices, followed by further upward growth in property values in 2024. “That means investors buying today should see a pretty quick upswing in their equity within the first 12 to 18 months of ownership”, he wrote in The Real Estate Conversation.
The impact on insurance
Investors looking to expand their portfolios or to enter the market should ensure that they take out specialist landlord insurance.
Unlike a standard home and contents policy, a specialist policy is designed to cover the unique risks property investors face, and to provide a financial safety net, when it comes to the most common types of insurance claims landlords need to make.
Importantly, it is often the only type of policy that provides for tenant-related losses such as loss of rent or tenant damage.
As there are different policies to suit different types of rentals (e.g. houses or units) and different leasing arrangements (e.g. fixed-term or short-term) it’s important to choose the right type of cover.
It’s also a good idea for investors to take out cover as soon as they enter into a contract of sale and not wait until they have tenants in the property as there are things that could happen at the rental before it is occupied that lead to insurance claims, such as damage from fire or storm, burglary or even a public liability incident.
Investors looking to take advantage of favourable conditions and purchase investment properties, should protect their investment with specialist landlord insurance. Generally, only landlord insurance offers cover for tenant-related risks – which account for a large number of claims landlords need to make on their insurance.
Looking for cover? Contact the friendly EBM RentCover team for help – 1800 661 662.
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.