The Melbourne rental market is swiftly returning to normal, with property investors across-the-board able to request rent reviews. At the same time, the looming prospect of a return to pre-Covid levels of immigration to Australia, including an expected big bounce in the overseas student market, is making owning an investment property a very attractive option.
But the dips in rents experienced by many Rental Providers during the pandemic, coupled with the impact of Victoria’s new tenancy protection laws, has contributed to a situation where using a professional property manager is more important than ever.
Nelson Alexander’s Head of Property Management Martin Sizer says simply putting up the rent now requires careful management.
“Victoria’s new Residential Tenancies Act says a Rental Provider can only raise the rent once a year,” he says.
“If you miss this window, you miss the year. You have to time your run so that you put up the rents at the right time of the year.
“So having a real estate agent on board to manage your investment property helps to ensure that you adhere to all the guidelines in the new legislation.”
The revamped Residential Tenancies Act – widely regarded as more pro-Renter than Victoria’s previous tenancy laws – came into force in mid-2020, just as the Covid crisis was hitting. The pandemic forced many Rental Providers to lower rents, while it became difficult, if not downright impossible, to rent out some houses and flats because of government bans on open for inspections.
But as Victoria rapidly moves into a post-Covid era, things are on the up for anyone who owns a rental property.
New national data shows the number of homes available to rent in Australia’s capital cities tightened by a further 5.4 per cent in May to hit a new historic national low of just 1 per cent.
Vacancy rates around the country now sit uniformly at low levels, the latest Domain Rental Vacancy Rate Report shows, ranging from 0.3 per cent in Adelaide to 0.4 per cent in Hobart, and 0.6 per cent in Brisbane, 1.4 per cent in Sydney and 1.6 per cent in Melbourne.
A 3 per cent rental vacancy rate is viewed as a healthy rental market. But the Domain report shows none of our capital cities are anywhere near that benchmark, and the situation is worsening.
In Sydney, the number of rental homes available fell 3.3 per cent in May to less than 8000, and in Melbourne by 8.3 per cent to just above 8200.
Domain Chief of Research and Economics Dr Nicola Powell says: “All capital cities remained in a Rental Provider's market in May, with a shortage in the supply and availability of rentals driving prices up and increasing competition for prospective Renters.”
According to Mr Sizer, Rental Providers throughout Melbourne are able to put up rents but the situation remains “very suburb-specific.” He says property owners need to be across the demand drivers and rental stock availability of particular suburbs, and even macro-areas of suburbs if they are to successfully raise rents.
This kind of “inside track” information on areas and markets is something that clients tap into from the databases run by Nelson Alexander. The company manages more than 17,000 residential rental properties. And on a daily basis, it tracks the overall availability of properties and the going rents for property types in suburbs from Ivanhoe and Thornbury to Carlton and the Docklands precinct.
“Depending on where your property is located, the potential to review rents is very different,” Mr Sizer notes.
“Even with properties located close to the city, a Rental Provider cannot demand a very high rent. But overall rents are going up,”
He says the Melbourne rental market has largely gone back to the way it performed prior to the pandemic.
For example, the July-September period is expected to be quiet for new lettings and Renter enquires. This is the way the market traditionally behaves.
“We are back to the seasonality we saw in the pre-Covid period where in these colder, darker months, demand for rentals is lower,” Mr Sizer says
“Rents are creeping back up. All the Rental Providers that made concessions to their Renters during Covid are now putting up rents or they are actively looking at raising rents.”
He says all the signs point to Melbourne experiencing a more normal market with the bulk of leasing activity occurring in the January-February period.
Dr Powell says Melbourne’s rental market showed improvement in May, sitting at the same rate seen prior to the onset of the pandemic in March 2020 and 0.5 percentage points off the record low seen in 2018. The number of vacant rental listings also fell for the fifth consecutive month with the stock sitting at lower levels than in March 2020.
Mr Sizer highlights the fact that the pandemic led to more people working from home and that many former city-workers are still spending at least part of the working week at home.
He says the city rental markets have been slow to come back compared to some other areas. But he expects demand for city rentals to bounce once overseas student numbers lift, which is widely expected to occur later this year and through 2023.
“With interest rates going up, it is providing another motivation for Rental Providers to review rents,” he says. “Rental Providers that have mortgages are requesting rent reviews.
“It is a good time to be a Rental Provider. We are in a post-Covid environment, we are seeing rents recover and with rents recovering it helps to compensate for any interest rate rises.
“A recovery in-migration will be the big issue going forward. And I am very optimistic that in the New Year, the traditional February-March peak period for new leasing activity will be extremely busy.”