Everything Perth landlords need to know about a landlord’s market
Across Australia, rental vacancy rates are ultra-tight, and they’re expected to get even tighter as 2022 progresses.
In Perth, the lack of housing supply is having a major impact on the rental market. Demand for rental properties in Perth remains persistently high, and the reopening of borders may squeeze availability even further.
Up and down the country, real estate experts have been quick to label Perth a landlord’s market.
What is a landlord’s market?
A landlord’s market is the term the property industry uses when the rental vacancy rate drops below 3 per cent.
Essentially, with so few rental properties available, renters begin to experience fierce competition for housing and rental prices start to increase as a result.
In Perth, rental vacancy rates are well below the 3 per cent mark. In November 2021, vacancy rates of Perth rental properties were at 0.5%, increasing to 0.6% in December 2021. The slight jump is not indicative of an ongoing rise in rental availability – it’s merely a reflection of seasonal rental changeover. Many leases end towards the end of the year, leading to a traditional uptick in vacancies.
With Perth’s vacancy rates at multi-year lows, it’s unsurprising that median rents have shot up by 10.8 per cent over the past 12 months. For homes, the median rent reached $460 per week in December 2021, while for units, it reached $390 per week.
The Real Estate Institute of Western Australia (REIWA) predicts a further 10 to 15 per cent surge in median rent prices as the year unfolds.
By all measures, the Perth rental space is a landlord’s market.
What does a landlord’s market mean for Perth landlords and property investors?
If you’re a Perth landlord or property investor, you’re in an advantageous position. Rental rates haven’t been this high for about 7 years, according to Domain’s December 2021 Rental Report.
The Domain report ranks Perth in the third position nationally for yearly changes in rental house prices over the 12-month period from December 2020 to December 2021. With an impressive 10.8 per cent annual increase in house rent prices, the WA capital is beaten only by Brisbane and Canberra.
According to the same report, Perth units rank even higher in performance, coming in second with an extraordinary 11.4 per cent jump in rental rates from December 2020 to December 2021. Darwin is the only capital ahead of Perth for the same period.
When it comes to gross rental yields – the pre-tax total annual income earned from a property – Perth tops the nation’s rankings. Perth’s status as the capital city with the highest gross rental yields for houses is a record-breaking first. At present, it’s cheaper to rent a home in Melbourne than in Perth
In an interview with Radio 6PR, Dr Nicola Powell, Chief of Research and Economics at Domain, said Perth house rental prices are just $40 per week below their peaks of the 2013 mining boom. Perth rental rates, she went on to say, are well on their way to reaching all-time highs.
Now is the perfect time for Perth landlords and property investors to seek a professional rental appraisal to make the most of this strong landlord’s market.
How will WA’s reopening impact Perth rental prices?
After almost two years, Western Australia has ended its hard border. The state is open again to vaccinated people from the rest of Australia and the world.
In the first 6 days following the border reopening, 4,900 people arrived from foreign shores. Arrivals from interstate are also estimated to be in their thousands.
The influx is offset by an outflow of people from the state – some of whom will most certainly return – but it’s still too early to put an exact figure on the numbers of people coming and going from WA.
Despite the absence of concrete numbers, the Perth rental market remains a highly competitive space.
According to Dr Powell at Domain, the WA capital isn’t seeing massive growth in new owner-occupiers. However, due to the high demand for rental properties, Powell thinks Perth may well become a magnet for property investors this year.
Powell also pointed to a jump in investment activity in Perth, saying this could foreshadow a further rise in the buyer segment in 2022.
Powell’s projections are backed by Ray White’s Chief Economist Nerida Conisbee, who says the rental market in the WA capital will remain highly competitive going forward.
The expectation throughout Australia’s real estate industry is that the reopening of international and state borders will place extra pressure on the rental market nationwide as people continue to arrive from overseas.
Perth may well feel the pressure even more than the other capital cities because its borders have been closed for longer. The impact of both international and interstate arrivals could hit the state’s rental market very hard, driving prices to new heights.
Rental prices are expected to increase
Other real estate experts are also anticipating a rise in Perth rental prices, along with a slight increase in rental listings.
In December 2021, REIWA reported that it expected the lack of rental supply in Perth to improve marginally in 2022, with the completion of new construction projects and a growth in property investment.
REIWA President Damian Collins said that while rental availability would most likely stay low, he expected there to be more rental properties on the market this year compared with 2021.
Despite the boost in supply, Collins estimates that median rental prices will rise by 10 to 15 per cent over the course of the year.
It’s fair to say that no one in the industry is predicting a drop in rental demand in Perth. The ongoing and potentially growing need for rental properties will ensure rent prices continue to escalate.
What’s interesting is that despite increasing rental costs, WA is still the most affordable place in Australia to rent a property, according to the Real Estate Institute of Australia (REIA).
The REIA’s Housing Affordability Report reveals that in Western Australia, just 19.7 per cent of family income was required to make rental payments in the December 2021 quarter.
The bottom line is that although rent prices are growing in WA, they “are not growing at unsustainable levels”, according to Collins.
For more background on the expectations for rental prices, please read our outlook article on What landlords and property investors can expect in 2022.
The benefits of transitioning short-term stay accommodation to long-term lease
Pre-pandemic, many WA property investors were active in the short-term stay accommodation market. But is short-term rental accommodation a sound investment strategy for investors going forward?
Over the past decade, third-party online booking platforms such as Airbnb and WA Homestay have made it easier for property investors to focus on short-term stays. As a result, there’s been significant growth in the number of short-term accommodation properties available in WA.
The rapid rise prompted the state government to explore ways of regulating the sector better. A new state-wide registration system for short-term stay properties is one of the government’s many new initiatives.
Local councils are also involved in managing the sector, to the extent that each council has its own set of short-term stay accommodation policies. For property investors, this means there is no standard regulation of the sector from one local government area to another.
If property investors or landlords intend to offer their property as short-term stay accommodation, they need to be well-informed about their regulatory obligations and the potential costs involved, both of which can make adopting a short-term rental strategy a less attractive investment option.
In a landlord’s market, switching a rental property from short-term to long-term accommodation is a risk-averse investment strategy. It also comes with a number of other benefits described in our article Should I convert my short stay rental accommodation to a long-term rental?
Why you should get a rental appraisal completed in 2022
In this dynamic landlord’s market, a rental appraisal is a must for Perth property investors. A rental appraisal consists of an expert assessing your property, your location and the current market to determine how much rent you should be charging. The leasing strategy will also identify some of the risk-flags to be aware of when considering tenant applications on volume.
At Here, our rental professionals will prepare a detailed rental appraisal report containing their expert analysis. The report provides actionable insights to allow investors to set a successful rental strategy.
To learn more about the advantages of getting a professional rental appraisal, read our article Top 4 reasons you need a regular rental appraisal for your investment property.
Get a no-obligation rental appraisal and optimise your returns for 2022
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