So we have established how to appraise a property when you first come onto the market but what other thing’s surrounding the property market have an effect?
The property Market is quite simply all about supply and demand. There’s actually a lot more to what effects the market. The property market is, amongst other things, linked to the economy. Think of the economy being the stone at the centre and the property market is one of the many ripples. Some other examples of ripples may be the number of new businesses, the level of immigration, or the level of funding given out by the banks. All these can affect the property market.
Take the current Perth market that is suffering. Over the last 18 months there has been a downturn in the mining and resources industry which has had a significant effect on the market in Perth (Let’s not even get started on Pilbara). This has meant more and more workers looking for jobs in the city as opposed to the previous FIFO positions. This has caused a rise in unemployment. With less people working and earning, less people are able to look for a property. It has also caused a slowdown in immigration, both nationally and overseas. It has also caused many overseas workers (like many of my fellow Scot’s, Irish and South African’s) have returned to their native country as the prosperous boom that leered them here has passed. Again this lowers the demand for properties, and at the same time, as these workers leave, creates a large supply. The decline in the Australian dollar has also reduced the number of people migrating to Perth.
Another factor which contributes is the amount of lending offered by the banks. In the last 12 months it has been clear that lenders are reducing interest rates in hope to secure more buyers. This is positive for anyone looking to move onto, or up the property ladder. News.com.au released an article in January 2016 stating ‘a standard $300,000 30-year home loan the average standard variable rate is 4.64 per cent and the monthly repayments are $1546’. That’s just over $350.00 a week, almost $50.00 a week lower than the median rent in Perth which REIWA indicated in December 2015 as $400.00 per week. ($2,600 a year for those who can’t do the math). This availability to buyers would encourage them to move from renting to owning, again another reduction in the demand and increase in the supply.
The bottom line is, it’s not looking too good for owners. But… there are still properties renting in this market. So what is the difference in those that are renting and those that aren’t? One reason may be that the owners are moving correctly with the market. As stated the median rent in Perth is $400.00 per week as of December 2015. In March 2015 it was $430.00. That is over 5% reduction. It is critical in a declining market to be proactive when choosing to reassess your rental asking price. If you leave it till tomorrow, it won’t have an effect today! (I’d like to trademark that quote) Let’s look at some scenarios.
Dave and John both have investment properties in the same street. Dave advertises at $400.00 per week and having no success after two weeks reduces to $380 per week, securing a tenant at $375.00 for 12 months moving in after 4 weeks of marketing. Taking the initial rent that is a loss of rent of $1,600.00 however investment return of $19,500.00.
John advertises at $400.00 per week also however does not reduce as he does not think it is necessary. After 6 weeks he reduces to $375.00 and secures a tenant at $350.00 for 12 months after 8 weeks. This is a loss of $3,200.00 and only a return of $18,200.00
In a declining market like we are currently in it is likely that the rents will continue to fall therefore it is important to act sooner rather than later to attract the best possible tenants. Holding out for a rental figure that may not be achievable means continued loss of income and, in most cases, being further from the market rent in your area. A good property manager should be able to give an idea of how the median rents in the area are changing on a weekly basis and assess where the next move should be. You do not have to drop by $50.00 each time however $395.00 rather than $400.00 can be the difference between securing a tenant or not.
For diligent and proactive assessment and marketing of your property contact the team at Rentwest Solution, award winning specialists in Property Management.