Home Info Centre Industry snapshot (May 2020): What landlords need to know about the investment property market
Industry snapshot (May 2020): What landlords need to know about the investment property market
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Industry snapshot (May 2020): What landlords need to know about the investment property market

09 Jun 2020 14 mins read

Your monthly guide to latest industry statistics and news impacting landlords and property professionals... Scroll down for general news, legislation changes, catastrophe relief and COVID-19 updates.

Asking rents down

In May, capital city asking rents decreased 1.3 per cent for houses to $537 p/w, while unit rents remained stable at $428 p/w, according to SQM Research. Sydney, Melbourne and Perth recorded decreases in weekly rents for both houses and units. Brisbane, Canberra and Hobart recorded decreases in house asking rents but minor increases in unit rents. Darwin recorded increases in house rents but declines in unit rents. Adelaide recorded increases in both house and unit asking prices. Across the capitals: Canberra ($628 p/w houses / $466 p/w units), Sydney ($647 / $480), Darwin ($480 / $354), Brisbane ($457 / $377), Adelaide ($408 / $317), Hobart ($430 / $396), Melbourne ($534 / $407) and Perth ($447 / $344).

Vacancies up

SQM Research showed the national vacancy rate rose 0.6 per cent to 2.6 per cent in April. The total number of vacancies Australia-wide was 88,668. With the exception of Darwin (-0.1 per cent to 2.6 per cent), all states recorded increases in vacancy rates: Sydney (+1.0 per cent to 3.9 per cent), Melbourne (+0.9 per cent to 2.8 per cent), Brisbane (+0.7 per cent to 2.8 per cent), Perth (+0.4 per cent to 2.3 per cent), Adelaide (+0.3 per cent to 1.2 per cent), Canberra (+ 0.3 per cent to 1.2 per cent) and Hobart (+0.6 per cent to 1.4 per cent).

Vacancies surge in CBD and holiday localities

SQM Research also revealed capital city CBD locations suffered some of the biggest increases in vacancy in April. Sydney’s CBD was worst hit, with vacancies at 13.8 per cent, followed by Brisbane (11.3 per cent), Melbourne (7.6 per cent), Adelaide (6.6 per cent), Perth (5.8 per cent), Darwin (5.3 per cent), Canberra (4.6 per cent) and Hobart (2.5 per cent). Other holiday locations such as Surfers Paradise (8.5 per cent) and Noosa (6.8 per cent) also suffered increased vacancy rates.

Yields compress

According to CoreLogic’s Hedonic Home Value Index, the average gross rental yield for capital cities in April was 3.4 per cent, while the combined regionals was 4.9 per cent – bringing the national gross yield down to 3.7 per cent. Sydney continued to have the lowest yield of the capitals (2.9 per cent), followed by Melbourne (3.2 per cent), while Darwin had the highest yield at 5.8 per cent. Hobart (5.0 per cent) was the only other capital to record a gross yield at or above 5 per cent. Perth (4.3 per cent), Adelaide (4.4 per cent), Brisbane (4.4 per cent) and Canberra (4.7 per cent) all recorded yields below 5 per cent.

Investor lending falls

ABS’ Lending Indicators for March 2020 showed new lending commitments for investment dwellings declined 2.5 per cent (seasonally adjusted) to $5.1 billion. The ABS noted falls in new loan commitments for investors were seen across all states and territories, apart from SA and the ACT, and investor loan commitments remain lower than owner-occupiers for the purchase of resi land, construction of dwellings, purchase of newly-erected dwellings and purchase of existing dwellings.

APRA statistics showed lending to investors declined 0.33 per cent (or $2.1 billion) to $64 billion in March. Investment mortgages fell to 36.8 per cent of all loans. RBA data also showed investor loans declined 0.1 per cent over the month.

According to APRA’s banking statistics, loans for investment purposes held with the Big Four banks fell in March. NAB and Westpac recorded the sharpest contractions, down approximately $700 million to $108.7 billion and $179.8 billion, respectively. ANZ’s investor home loan portfolio was also down approximately $400 million, from $85.4 billion to $85 billion, while CBA’s book remained stable at $156.8 billion.

Building approvals up

The number of building approvals nationwide rose 1.3 per cent in March to 15,234 (in trend terms), according to the ABS. Approvals for private sector dwellings excluding houses rose 2.8 per cent, while approvals for private sector houses also rose 0.2 per cent. Dwelling approvals rose in NSW (+5.2 per cent), Tasmania (+3.4 per cent), WA (+2.2 per cent) and Victoria (+0.7 per cent). Falls were recorded in the ACT (-7.0 per cent), SA (-4.9 per cent) and Queensland (-1.8 per cent), while the NT was flat. The value of residential building rose 0.5 per cent.

Property listings decrease

National residential property listings decreased 4.9 per cent in April to 292,775, according to SQM Research data. All capital cities, except Canberra (+0.4 per cent), experienced decreases in property listings over the month, with Perth (-8.4 per cent) recording the largest decrease, followed by Sydney (-7.2 per cent), Adelaide and Darwin (both -6.0 per cent), Brisbane (-5.6 per cent), Melbourne (-4.7 per cent), and Hobart (-4.3 per cent).

Asking prices mixed

SQM Research data showed capital city asking prices for houses increased 0.5 per cent to an average of $995,000 in May. Unit asking prices were unchanged at an average of $573,300. Melbourne, Perth and Adelaide all recorded increases in both house and unit prices, while Canberra and Hobart recorded decreases for both. Brisbane and Darwin both saw decreases in house asking prices and increases in unit prices, while in Syndey the opposite was true.

Dwelling values rise

CoreLogic’s April Home Value Index showed national housing values increased 0.3 per cent over the month – 0.2 per cent combined capitals and 0.5 per cent combined regionals. The median value of a home was $557,739 – $647,414 for combined capitals and $396,070 for combined regionals. All capitals, except Hobart (-0.1 per cent) and Melbourne (-0.3 per cent) which recorded falls and Canberra which held steady, saw positive growth over the month: Sydney (+0.4 per cent), Brisbane (+0.3 per cent), Adelaide (+0.4 per cent), Perth (+0.2 per cent) and Darwin (+1.7 per cent).

New home sales down

Figures from the HIA showed new home sales fell 1.1 per cent in April. In the two months since the COVID-19 restrictions took effect, new home sales declined 22.8 per cent with the largest decline recorded in SA (-26.8 per cent), followed by WA (-25.2 per cent), NSW (-23.9 per cent), Queensland (-21.3 per cent) and Victoria (-16.7 per cent).

Distressed sales stable

Figures from Domain revealed urgent property sales have remained virtually unchanged around the country since February. Most capitals recorded very marginal increases in distressed sales, while Canberra and Brisbane recorded falls in listings. Around the capitals: Sydney (+0.2 per cent to 1.6 per cent), Melbourne (steady at 0.5 per cent), Brisbane (-0.1 per cent to 2.9 per cent), Perth (+0.1 per cent to 2.4 per cent), Adelaide (+0.2 per cent to 1.1 per cent), Canberra (-0.1 per cent to 0.6 per cent), Darwin (steady at 2.8 per cent) and Hobart (+0.3 per cent to 1.0 per cent).

Apartment construction falls

Research from JLL found the number of inner-city apartments under construction across the major capital cities fell 5 per cent in 1Q2020, while the number of apartments being marketed fell 11 per cent. Despite supply decreasing, demand will also fall and JLL expects apartment rents to decrease by a “moderate” 5 per cent.

Rentals still unaffordable

According to Anglicare’s annual Rental Affordability Snapshot, despite the JobSeeker payment being doubled for six months, just 1.5 per cent (1,040) of rentals would be affordable. Without the welfare increase, just nine out of 69,997 properties would be affordable for those on unemployment benefits. For those on an aged pension, just 1 per cent (743) would be affordable and 0.5 per cent (326) affordable for those on a disability support pension.

Top resilient areas revealed

The PRD Resilient Regional Areas report has identified the top 12 most resilient regions across Australia’s east coast. Based on five criteria (affordability, property trends, investment, project development and unemployment rate), the most resilient regions are Douglas Shire, Cairns Region, Tablelands Region, Livingstone Shire (all Qld), Upper Hunter Shire, Singleton Area, Greater Hume Region (all NSW), Greater Bendigo City, Moyne Shire, Bass Coast Shire, South Gippsland Shire (all Vic) and Kentish Municipality (Tas).

Foreign investment declines

According to the FIRB’s Annual Report, the number of foreign investments in residential real estate fell by 2,523 applications to 7,513 in FY19. Despite a fall in the number of applications, the value of the transactions increased 18 per cent ($2.3bn) to $14.8 billion.  Mainland Chinese real estate investment into Australia in FY19 fell more than 50 per cent to  $6.1 billion, while Hong Kong investment more than tripled to $9.3 billion (up from $2.8bn). Singaporean investment also rose $2 billion to $9.8 billion and Japanese investment was up to $3.8 billion (from $2.2bn).

WA’s strata laws come into effect

The amended Strata Titles Act 1985 and new Strata Titles (General) Regulations 2019 came into effect in WA on 1 May 2020. All new approved forms under the amended Act are available from Landgate.

New pool regs in Vic

The new registration and inspection requirements for pools and spas which were due to come into effect on 1 June have been extended. Pools and spas must now be registered with the local council before 1 November or risk fines. Safety barriers must also be inspected every four years under the state’s new pool and spa safety laws.

Strata rules ease in Queensland

The Queensland Government has passed new laws to help ease the financial burden on strata communities caused by COVID-19. The bill provides measures to assist bodies corporate and owners facing financial hardship and includes a relaxation of administrative requirements so Queensland strata communities can make decisions to assist unit owners suffering financial stress caused by the pandemic. Options available include allowing committees to temporarily postpone the due date for levy contributions, preventing interest from being charged on outstanding levy contributions, allowing consideration of reducing sinking fund budget levies for non-urgent capital works such as refurbishment or painting, and the relaxation of requirements to initiate legal proceedings to recover levy debts that have been outstanding for two years. The relief measures are set to expire on 31 December 2020.

ATO advice

With a number of rental property owners having their rental income adversely affected by COVID-19 (e.g. reduced rental income, tenants under deferred payment plans, or travel restrictions impacting short-term accommodation), the ATO has issued advice around deductions.

If tenants stop paying rent or pay less rent due to the direct effects of COVID-19, landlords will still be able to claim their normal expenses for their investment property in their tax return, and don’t need to apportion their expenses. When tenants return to paying the full weekly rent, which may also include back payments, this needs to be included as income in the year it was received.

Depending on the arrangement made with the tenant about paying rent in arrears, this may take a substantial time and will need to be declared over multiple years. If landlords receive an insurance payout for loss of rent, this should be included as rental income in the year it was received.

In relation to short term rentals, what rental property owners can claim and how they apportion their deductions depends on how they were using the property before COVID-19 and how they were planning on using it during the COVID-19 period. This usage and intended usage will impact how they apportion expenses between when the property was available for rent and when it was used for private purposes. More info on the ATO website.

Catastrophes 

Insurance claims for the series of devastating bushfires across NSW, Queensland, SA and Victoria from 8 November 2019, had topped 38,100 by 26 May 2020. The estimated value of the insured losses was $2.32 billion.

The fall-out from the hailstorm which hit South East Queensland on 17 November 2019 is still being felt. As of 26 May 2020, more than 28,600 insurance claims, valued at $451 million, had been lodged.

The series of destructive hailstorms that struck parts of Victoria, the ACT and NSW on 19 and 20 January was declared a catastrophe by the ICA on 19 January. As at 26 May, more than 124,600 claims had been received with a value in excess of $1.52 billion.

On 10 February, the ICA declared its sixth weather-related catastrophe in five months after severe storms and flooding lashed parts of Queensland and NSW. As at 26 May, more than 96,500 insurance claims worth $896 million had been made.

EBM RentCover policyholders caught up in the natural disasters should contact our Expert Care Team for claims assistance.

COVID impact revealed

CoreLogic’s March Quarter Property Market & Economic Review showed negative economic shocks had seen dwelling values being relatively insulated while transaction activity had been more impacted. By early May, capital city housing values had fallen by less than half a per cent over the month, while the number of sold properties declined by around 40 per cent over April. Figures also revealed a -0.4 per cent decline in rent prices nationally over April.

COVID-19 sees 60% of renters struggle

The economic fallout from COVID-19 has resulted in renters experiencing rental affordability issues, according to a survey by rent.com.au. The survey found 59 per cent of renters had either stopped working or had their working hours reduced, 22 per cent said their ability to pay rent had been severely affected and 35 per cent had requested a rent reduction or deferral (52 per cent were refused and 17 per cent were successful, with respondents saying 22 per cent of landlords/PMs had handled the situation positively, 31 per cent neutral and 47 per cent said it was handled negatively). Some 66 per cent said they didn’t feel comfortable seeking support from their landlord/PM, while 32 per cent said the landlord/PM had been helpful and informative. Among renters who were planning to move within the next six months, 47 per cent said those plans were now on hold.

New 7-point plan

The Property Council of Australia (PCA) has unveiled a 7-point plan to help stimulate the post-COVID economic recovery. Aimed at boosting construction, attracting investment and improving confidence across the property industry, PCA’s proposed plan includes abolishing stamp duty, retaining the existing negative gearing and capital gain tax arrangements, removing foreign tax surcharges, introducing a $50,000 grant for 50,000 homebuyers who are planning to buy a newly-constructed home, making investment guarantee a permanent tax system feature, and financial incentives for energy-efficiency efforts.

Rental reforms

At the emergency parliamentary sitting on 12 May, a change to break-lease fees was introduced in New South Wales. Tenants who are unable to negotiate a rent reduction with their landlord can seek to terminate their lease through the NCAT, which will limit compensation to the landlord at no more than two weeks’ rent.

From 25 May, tenants in Tasmania who are experiencing housing stress because of the impacts of COVID-19 can apply for Rent Relief. The scheme provides up to $2,000 or four weeks’ rent to assist with rent payments. The one-off payment is paid to landlords or their agents who have entered into an approved temporary rent reduction agreement with their tenant. 

On 28 April and 11 May, the Northern Territory modified a number of residential tenancy notices due to the changes in the Residential Tenancies Act 1999 and these will be in force until the end of the declaration of the health emergency.

Main photo by Denise Jans on Unsplash

*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 there, contact 1800 961 017 if you have any questions. 

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