Some Gloom but NOT all Doom: Australia's Outlook

Home buyers have been squeezed by rising property prices and a string of interest rate hikes, and this is having a knock-on effect to tenants too.

So could the property bubble burst? That is now a real possibility. The 0.25 per cent rate rise of this week will push more Australian families into housing stress, and whilst many will cope many will not. This will force many to sell up, many for whatever they can get.

That trend is already evident in the outer suburbs of many Australian cities, particularly Sydney. So property prices, in some suburbs, might well fall further in the months ahead.

Is it all gloomy though? Another rate rise could attract a flood of hot money into this country.
Australia’s interest rates are already substantially higher than those in America, Japan and many other countries.

So foreign investors are likely to find relatively safe, interest only, investments very attractive indeed. This will, once again, strengthen the $A, which will help to ease inflationary pressures in Australia. But this will be relatively slow.
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None of this, though, will help sustain property prices, particularly in the outer suburbs.

One factor might, however, and that is a strong migration program.

Western Australia and Queensland are still keen to attract more migrants. The two big resource States still need many more people to fill the gaps in their workforces. Those shortfalls are restricting development, in those places. But neither New South Wales or Victoria are likely to benefit much from that.

High house prices are already forcing people out of Sydney, and the current slowdown, in the manufacturing sector is likely to limit job opportunities in Victoria and South Australia.

So while the outlook is gloomy for some, it's not all doom.

Simon Turner simon@marquetteturner.com.au

The Renter's Dilemma

Rents continues to rise across all areas of Sydney, some areas far more than others, and typically all under the instruction of landlords, and perhaps with “advice” from their estate agent.

With the rises in interest rates, and the never ending increase in a landlord’s outgoings, such as council rates, land tax and strata levies, it is perfectly normal for a landlord to expect to cover these constant increases through the rental income from an investment property. And why not? Every day we read in the papers of the shortage of rental properties, the hysteria associated with large numbers of renters vying for the same property, and to a lesser extent, rental properties “being auctioned” to the highest bidder.

Of concern is the expectation a landlord has in gauging a realistic rental price of their property. The real estate agent managing the property is expected to keep the landlord up to date and ensure the property being managed is attracting a fair market rental. And in most circumstances, this is indeed what agents do.

However, consider an investor living overseas who has a rental property managed by an agent. No doubt that person would be fully aware of the shortage of rental properties and the increasing rents commanded – this is daily news both here and overseas. How realistic do you believe that landlord is in relation to their investment property? How much correspondence do you think the investor has with the agent? The property may not be in a suburb where rental demand is high. The property may also be in need of major repairs.

Typically, if a rental property goes on the market and is not snapped up quickly by a renter, the property is quite possibly overpriced. The agent would normally set the price of the property, after consultation with the landlord.

Unfortunately there are a number of landlords with high expectations in what their property should be attracting in rental income, brought about because of their increased outgoings and of course the media attention (as well as the all too common “agreeable” nature of many agents).

This clearly makes it even harder for tenants to find a new and affordable place to live.

Our advice is, particularly if you are considering vacating and looking for a new property in the early part of the New Year because your lease is ending and the landlord is asking for maybe a 5-10% rental increase:
- The cost and stress of moving far outweighs this increase;
- The beginning of the year is generally the most competitive for tenants;
- Explain to your agent/landlord that you have been a long-term, reliable tenant;
- General wear and tear on a property obviously increases the more tenants that move in and out of a property, it is in the best interest of the landlord to keep an existing tenant
- Offer to sign a longer term lease;
- Many landlords have not been able to increase their rents over the last few years, despite increasing costs, interest rates and a flat market, so it is unsurprising that it is “their turn now”.

Should you have any questions regarding your particular situation, whilst the Office of Fair Trading should be able to advice you of your rights and opportunities, Marquette Turner is more than willing to assist you. Simply call us on 1300 737 778. Simon Turner