Rents to rise sharply By Nicki Bourlioufas July 18, 2005 From:
RENTERS may be in for a rude shock with analysts predicting tightening vacancy rates and sharply rising rents - and an early end to the property downturn. Healthy immigration and population growth are increasing demand for rental properties and driving down vacancy rates in Australia's big cities. In Sydney, Brisbane and Melbourne, the vacancy rate has fallen to 2 per cent or lower. Vacancy rates are also headed lower in other cities.
"Demographic factors are going into the rental market which is tightening and that is putting upward pressure on rents," said Shane Lee, an economist at Citigroup.
"Vacancy rates will probably stabilise around current levels but we are going to see upward pressure on rents," he said.
Rising rental returns for property investors will help curb the fall in unit prices and ease downward pressure on house prices, said Lee. Inner-city unit prices in Sydney, Melbourne and Brisbane have fallen by up to 20 per cent.
"There will be less forced sales from property investors and less downward pressure on unit prices," Lee said.
Figures from the Real Estate Institute of NSW released on Friday showed the vacancy rate for Sydney rental properties fell to 2.5 per cent in June, down from 3.2 per cent the previous month.
Inner Sydney, which includes the eastern suburbs, inner west and inner city, posted its equal lowest result in five years with a vacancy rate of 2 per cent.
REI president Rowen Kelly said the demand for rental homes should encourage property investors back into the market.
"Vacancies have been trending down over the past year due to an ever-increasing demand from tenants," Mr Kelly said.
Steady as she goes
Steady interest rates in recent months has also boosted the confidence of home buyers, according to Citigroup.
With inflation under control, the central bank has not raised interest rates since March "and consequently expectations shifted to rates staying either unchanged or possibly going lower rather than rising further," said Lee. "This has seen a significant shift in sentiment towards housing," he said.
The central bank lifted official interest rates to 5.50 per cent from 5.25 per cent in March, taking official rates to their highest level in four years.
But now that rates aren't likely to rise for the rest of the year, analysts are already calling an end to the so-called housing downturn.
In Sydney, house prices fell by 3.4 per cent over the year to March, while prices in Melbourne dropped 1.7 per cent. In Canberra, prices slipped 1.3 per cent.
In Adelaide and Perth, house prices bucked the national trend, rising 8 per cent and 9.9 per cent respectively over the year to March, while Darwin prices jumped 9.6 per cent. In Brisbane, growth was a little slower at 2.5 per cent
"At this stage, the positive signs are centred on owner occupiers and detached housing and it appears that this, the largest segment of the market, has passed a turning point," said Citigroup.
