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All indications are that rent prices are on the slide in Sydney as the property market cools and rental vacancies rise.
As a landlord in this type of market you are more likely to be better off experiencing no vacancy cost – when your property is standing empty and idle – than trying to bump the rent up to achieve a higher rental yield. This could prompt your tenant to leave as they could find better living arrangements elsewhere at a lower cost.
So what does the fall in Sydney rent prices mean for landlords, and how can you ensure your property remains tenanted?
Let’s first take a look at the backstory to all this – the cooling property market, and then look at what you can do counter the fall in rent prices.
Sydney rent prices fall
Domain’s quarterly Rental Report indicates that rental price growth for houses has stagnated over the September quarter median unit rental price down 0.9 per cent to $545. The report goes on to say that rent prices in some parts of Sydney have dropped by almost 10 per cent in the past year.
Rent prices in some parts of Sydney have dropped by almost 10 per cent in the past year
The median asking rent for houses remained flat at $550 for the seventh consecutive quarter. But for the first time since 2004, the median asking rent for units dropped year-on-year to $545.
SQM Research records a similar story, with 2.8 per cent of all rental properties in Sydney vacant in September 2018 – a figure they predict could escalate to 4 per cent in the coming years. They identified Sydney’s North Shore suburbs – Avalon, Whale Beach and Bilgola – with vacancy rates as high as 8.3 per cent, up from 5.7 per cent just a year ago.
Vacancy rates have not been at this level since 2004.
Why are Sydney rent prices falling
The rapidly cooling Sydney property market is a clear factor in the squeeze on rents.
According to property data analysts, Corelogic, Sydney house prices have fallen 5.6 per cent in the 12 months leading up to August 2018. It’s a similar tale in Melbourne, which has actually seen steeper falls in house prices of 3.9 per cent over the last quarter.
Other factors in the rising vacancies include the oversupply of units and recently completed new dwellings in some areas of Sydney, which gives tenants more choice on price and where they live.
With rental prices on the slide and choosy tenants the norm, you need to focus on keeping your investment property permanently tenanted, rather than raising your rental yield.
How to reduce vacancy rates
Reducing the vacancy rate of your property is crucial if you are going to maximise its ROI over the long term. How? By being a smart landlord and:
- Pricing your rent to match the market, particularly in a tough market with rising vacancy rates. Undercutting similar properties by just $5 a week could all be the difference to securing tenants and missing out.
- Be sensible with rent increases. This could mean keeping the rent static for the time being. This is often a smarter move than raising the rent – which could prompt your tenant to move out – leaving you with the inevitable costs of advertising, screening and meeting prospective new tenants.
- Getting the timing right by avoiding looking for tenants in holiday periods – like December – when a lot of people are away, and your chances of finding tenants is greatly reduced. Fail to do this and you risk having your property vacant for much of the festive season and even well into January.
- Keep your property well maintained and repair items that fail promptly. Small details like painting your property’s interiors every few years can make all the difference – and will keep your existing tenants happy.
How to keep your tenants happy
Keeping tenants – especially long term tenants – happy is essential to the ROI of your Sydney investment property. This is key to minimise turnover and the time your investment property is left vacant. Be a good landlord and retain your existing tenants by:
- Being flexible, friendly and respectful in all your dealings with your clients. You essentially want to them to behave how you do – and setting a professional example is a great way to ensure this happens.
- Having a clear rental agreement, which sets out what is expected of them and you. This way you minimise the likelihood of any misunderstanding – and they know what they are responsible for.
- Knowing when to raise or hold rental rates is essential if you want to retain long term tenants. In a weak rental market you could even offer a rate that is slightly lower than the going rate, as an incentive to retain tenants.
- Getting any repairs done asap so they are not inconvenienced. Just imagine how frustrating it would be if you didn’t have hot water for even one night, let alone a week.
- Respecting their privacy, especially when it comes to inspections and accessing your property.
Who is the ideal tenant?
Having ‘good’ tenants is crucial to ensuring you maximise the ROI on your rental property. So what does the ideal tenant look like? Ideally they should be:
- Financially stable, with a regular income
- Have a sound character and be dependable
- Have a positive credit record
- Have positive references, with no record of bad behaviour as a tenant
Can a property manager help reduce vacancy rates?
A good property manager may be able to reduce vacancy rates in a number of ways. The first is that they can help bridge the gap when a tenant gives notice they are leaving. An experienced property manager will also screen tenant’s background thoroughly, and be a better judge of character – and instinctively know which people are likely to be better long term tenants. They are also there to handle both urgent and non-urgent repairs quickly and efficiently – and respond promptly to your tenants requests.
A property manager will cost money, but it is often money well spent.
Not sure whether you should increase your rent or stay put? Download your free property report now or have a chat to one of our local experts today. At propper, we focus on finding quality long-term tenants and help to ensure your property is never vacant.