Will COVID-19 Cause Perth Rents To Drop?

Will COVID-19 begin to impact on Perth rents?

After all, the virus has already had an enormous impact on our local economy, with retailers and other businesses temporarily closing, unemployment rising and state and non-essential travel becoming off-limits.

Now, with uncertain economic times ahead we look at whether and when and how we expect rents to be affected.

Rents holding up so far

The good news is that, at the time of writing, Perth rents have held up well. CoreLogic reported that over April 2020, Perth was the only Australian capital city market where rents rose – albeit at the rate of 0.1%. Perth’s rental yield was also higher than any other major mainland capital at 4.3%.

When you consider that Sydney property yields an average of 2.9% and Melbourne 3.2%, the income investors can receive on Perth real estate looks pretty appealing. In fact, it’s one of the main reasons we’ve previously forecast that investors will begin to enter the Perth residential property market in bigger numbers over the next few years. So COVID-19 has not yet changed this.

Supply and demand both down

While rents have improved, the reality is that tenants aren’t as active in the current market. According to REIWA data, leasing activity fell 21 per cent over April. One of the main reasons for this was that people were choosing to stay put in their homes rather than actively looking for a new place to live.

So far, however, REIWA has not identified the moratorium on evictions as one of the main factors people are staying where they are. Most tenants are still meeting their rental obligations.

This fall in demand has also been offset by a fall in supply. REIWA reported that the number of rental properties available on the Perth market is 23% lower than this time last year. It is also falling week-by-week.

In other words, although we’re seeing reduced interest from tenants, they also have fewer properties from which to choose. This is helping keep the rental market reasonably strong. It also means that landlords who can present their property so that it’s attractive to prospective tenants should be able to attract interest.

What needs to happen for rents to fall?

Because the rental market works on supply and demand, rents fall when tenants are no longer willing to pay the price landlords are asking. This often happens when there are more properties on the market than there are prospective tenants. Alternatively, it can happen because tenants can’t – or simply won’t – offer as much as they once did.

The most likely causes of a fall in rent are:

  • further rises in unemployment so that more prospective tenants are out of work
  • wages falling or other costs increasing so that tenants no longer have as much money to spend
  • a lack of confidence in the economy so that people believe rents are likely to fall in the future and therefore won’t offer as much today
  • more properties coming onto the market, so that tenants have more choice

How likely are these to happen?

The reality is that no one can forecast when the economy will recover from COVID-19 and how quickly that will happen. However, WA seems to have a lot going for it compared to most other Australian states.

Our economy is less reliant on services than NSW and Victoria and less reliant on tourism than Queensland. These are the industries currently hardest hit by restrictions. Also, as East Asia’s economies seem less affected by COVID-19 than many other parts of the world, the market for WA’s mineral resources could take off again soon.

On top of this, we have to date had far fewer cases of COVID-19 than the Eastern States, meaning we should be able to get our economy back to full capacity sooner.

Finally, we’re not seeing an oversupply of rental properties on the Perth market and we’re confident this won’t change too much anytime soon. As we noted, the supply of Perth properties is substantially down on this time last year. Each of these factors should help keep rents stable.

That said, a lot could happen over the next few months, so we’ll be watching the market intensely and keeping you up to date with both the data and what we’re seeing on the coal face.

Get in touch

You’ll be pleased to know it’s business as usual for us during COVID-19, get in touch if you’d like any help.

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