News
Rents and interest rates on a collision course in 2012/13
Wed, 21 Dec 2011Fact Points
• The rental vacancy rate was 4.8% in September 2009 – Today it is 2.8%. At this rate by mid 2012 it will be 2.5% and 2.0% by the end of 2012 if this trend continues.
• Rents have risen by 6.8% over 2011, of which 3.9% came in the last 3 months.
• 2012 starts with a ‘rental boom’ in Perth with multiple applicants and properties renting above asking prices in some areas. This will become more widespread in 2012 if this trend continues.
• The average proportion of family income needed to meet rental payments in Australia is 24.8%.
• Currently in WA the proportion of income needed to meet rental payments is 20% based on a median family weekly income of $1,953.
• If WA households reach the same percentage of weekly family income needed to meet rental payments, then median rents will rise to $485 per week, an increase of $90 per week or 22%. With a slight acceleration of the trend set over the last 3 months this level should be reached in 12 months.
• This would take the median yield in WA from 4.4% to 5.4% if the median price does not increase.
Comments
With interest rates tipped to fall by up to 1% over 2012 this will make Perth property yields on par with the cost of finance given current lending rates being offered of 5.99%.
It is exceptionally rare in the normal market cycle that rental yields on residential property are at or above the cost of borrowing.
Normally we see a changeover from rental pressure when the rental yields come close to borrowing rates.
There is normally a ‘premium to own’ of 1 to 3%, i.e. the interest rates are normally 1 to 3% higher than the rental yield rate.
The rental pressure of 2011/12 will therefore likely become purchasing pressure in 2012/13 if this trend continues.
Written by Gavin Hegney, Executive Chairman, Hegney Property Group Perth WA.
