Perth rental market emerges on top

For the first time since January, every capital city recorded a rise in dwelling values, essentially off the back of accommodative monetary policy and fiscal policy, converging with a strong increase in consumer sentiment and the beginning of a recovery in economic conditions.

However, while property prices moved into a broad-based upswing, rents remain a mixed bag, according to the latest CoreLogic’s Property Pulse, released 03 December 2020.

House rents proved to be more resilient, with most capital cities surpassing the average national increase at 3.2 per cent. Perth led the charge with 8.6 per cent, followed by Darwin with 6.3 per cent, Canberra with 4.9 per cent and Adelaide with 3.3 per cent.

Despite this good news, CoreLogic’s head of research Australia, Eliza Owen, advised investors to be wary.

As of November 2020, Perth rent values were still 11.7 per cent lower than the peak in 2013, while Darwin rents were 21.6 per cent lower than the 2014 high.

“While this may spell good news for landlords across Perth and Darwin, it is worth noting that the reason for such strong rental increases are the gradual withdrawal of investors from the market. Investors comprised only a small portion of market activity over the years following the mining downturn.”

“A time series of rolling annual growth in rents across Perth and Darwin, compared with the combined capital cities, contextualises the recent increase in rents. It shows extreme highs and lows in growth of rental incomes across these cities, and the downturn that rental markets are recovering from.”

According to Ms Owen, the rapid rebound in rents could see investment participation bottom out in the residential market through 2021, and start to climb.

ABS housing finance data suggest the investor share of mortgage finance for the purchase of property through September was just 16.2 per cent in Western Australia, and 11.6 per cent in the Northern Territory. These are the lowest rates of investor participation of the states and territories.

Meanwhile, the bigger capital cities saw more modest rises in house rents, with Brisbane at 2.2 per cent, Sydney at 1.0 per cent and Meblurne at 0.6 per cent.

Hobart was the only capital city that saw a decrease in house rents, falling by 1.5 per cent.

“Declines in Hobart rents may partially have come from a lack of demand among workers in tourism and hospitality where, as with inner-city Sydney and Melbourne, Hobart had a relatively high concentration of workers,” Ms Owen explained.

“However, another narrative around the decline in rents in Hobart has been the conversion of Airbnb to the long-term rental market adding to supply, at a time when demand was falling. As interstate borders reopen, this may see the return of stock to short-term rental accommodation, and see Hobart rental markets once again tighten.”

On the other hand, unit rents in capital cities saw more decreases, as evidenced by the -4.4 per cent decrease in combined capitals and a -3.1 decrease nationally.

Sydney, Melbourne, Brisbane and Hobart saw decreases at 5.4 per cent, -7.0 per cent, -1.3 per cent and -4.4 per cent, respectively, while smaller capital cities such as Adelaide, Pert, Darwin and Canberra saw rises at 1.3 per cent, 5.4 per cent, 6.3 per cent and 1.2 per cent, respectively.

Interestingly, rents in combined regionals were higher than combined capitals, with house rents increasing by 4.5 per cent and unit rents increasing by 3.5 per cent.

Looking forward, Ms Owen expects COVID-19 to have a lasting impact in terms of varied dynamics between cities and property types.

“For weaker rental markets such as Sydney, Melbourne and Hobart, rents are likely to remain weak until international travel resumes.”

“Meanwhile, other capital cities, especially those with rapidly rising rents like Perth and Darwin, could see the gradual re-entry of property investors, which would lift rental supply and support an easing in rental value growth over time,” she concluded.