The Perth rental market came home strongly in 2020, which is great news for landlord investors.
According to the latest Domain Rent Report, released in January, Perth rents experienced the greatest growth in the country last year, rising by 13.5 per cent for houses and 12.9 per cent for units. We take a look at what happened in the Perth rental market in 2020, the predictions for this year and what it all means for landlords.
How 2020 played out for the Perth rental market
As domestic travel resumed, Australians returned from overseas and employees (such as FIFO workers) relocated from interstate in reaction to fluctuating border restrictions, demand for rental properties in Perth surged over 2020.
As a result of the hike in demand, rents rose to their highest in five years. During the December quarter alone, house rents jumped $25 (or 6.3 per cent) to $420 per week, whilst units rose $10 (2.9 per cent) to $350 per week over the same period. Darwin was the only capital city to experience greater rises in the December quarter.
The 2020 rent rise represents the largest annual increase since mid-2013. Although prices are still lower than the mid-2013 peak, when houses rented at $490 per week and units $450, Perth is no longer the most affordable capital city rental market. That title now goes to Adelaide.
Has Perth become a landlord’s market?
Vacant rentals have plunged 63 per cent compared to last year, and Perth’s vacancy rate has continued to decline to the current ten-year low of 0.9 per cent. A healthy vacancy rate is between 2.5 and 3.5 per cent and with anything under 2 per cent considered a tight market, Perth is looking very squeezy indeed. And it’s not over yet – people from around the nation are still relocating to Perth in response to the pandemic.
With demand for rental properties remaining high, and vacancy rates low, market conditions are clearly favouring landlords. For the first time in years, Perth tenants are now well and truly operating in a landlord’s market. Landlord’s market conditions could see property investors increasing their returns. In such a market landlords can be more selective about their tenants, perhaps setting their own lease terms. And, once the freeze on rent rises under the COVID-19 emergency measures expires in March, they may even be able to command even higher rent. Having the choice of tenants may mean unexpected costs are reduced, the whole rental process is smoother and ultimately more profitable.
What lies ahead in 2021?
The state government’s moratorium on rental hikes and evictions, introduced in April 2020, is coming to an end on 28 March. This is expected to set off a flurry of activity in the rental market, with rents set to increase after a freeze of almost 12 months and tenants, many of whom may currently be paying below-market rent, changing properties as a result. The Real Estate Institute of WA (REIWA) predicts rents will increase by 15 to 20 per cent, and some industry experts are even predicting rises of up to 30 per cent.
The ‘landlord’s market’ conditions, coupled with the prediction of strong capital growth for Perth in 2021, could well draw more investors to the property market.
There have been concerns about the rental market heading into crisis territory due to a lack of stock and high demand. However, rent is expected to remain at manageable levels as more housing supply comes into the market as a result of government home building stimulus. For example, first-home buyers will be assisted to the property market by generous building bonuses, therefore removing some rental demand.
For more information about the Perth rental market, contact our expert team today.