Market Update

Newcastle and the surrounding areas have seen a strong demand from investors purchasing investment properties for some time now, property prices having been heading North – hence the reason why investing in property is so lucrative.

However, with all this activity there has been a side effect; we now have a slight over supply of rental
properties on the market.

In the 2000’s we constantly saw
vacancy rates of below 2%, in fact they were below 1% for some time. As a result, we have not only seen rising house prices, but also seen rents rise too.

The old rule of thumb is when we have a vacancy rate of below 2.5% it is known as an investors’ market i.e. circumstances favour the investor. Over the past few years, investors have had a wonderful run and in a lot of ways still are with the rising house prices, but in our area we have seen a major change in the vacancy rate. It is no longer an investors’ market. The average vacancy rate has been 2.7% over the last 12 months, and we hit a new high of 4.6% in April.

Vacancy Graph April 2015

How does this affect leasing property?

  1. We no longer have a queue of tenants coming to open houses; in fact we are lucky now to have one or two groups attend.
  2. Vacancy times are increasing.
  3. Weekly rental prices are declining.
  4. Tenants want better maintained properties.

How can we as the leasing agent and the property owner work together to help reduce lost income with vacancies?

Price: a rent increase is always pleasing (for the landlord), but when your tenant gives notice to vacate, you must quickly determine the market rent. Like we all do, prospective tenants use the internet to shop around and can quickly compare properties and prices. If you are asking more than the market rate, prospective tenants will decide your property is not value for money, look elsewhere and your property will remain vacant.

Promotion: The internet is the shop front for leasing your property. When vacancy rates were low, there were usually six or seven properties listed for rent in any given suburb on the internet, but today it is 20 plus in most suburbs. It is essential your property is promoted through several avenues and in the best possible way. Promoting your property in today’s world includes:

  • listing on realestate.com.au.
  • listing on domain.com.au.
  • several good quality photographs.
  • a well written and quality property description pointing out all the benefits.
  • a floorplan.
  • listing on page 1 of searches.

What does listing on page 1 mean? When your property is listed on the two major property websites, it usually starts off on page 1, however as new properties are registered, it quickly slips down the list. In the past we could trick the system by taking the property off the website for 24 hours and then re-listing it. Well they quickly woke up to this and the
systems no longer allow it. So to remain on page 1 there is unfortunately only one way to stay there and that is to pay. This can cost from $100 – $500 per site, but usually a $250 upgrade to the standard listing price does the trick.

Now this may seem highly expensive, but think about it. Ten years ago we would advertise vacancies in the paper and landlords would help cover this cost at around $100 per ad. Usually three or four ads would need to be taken out to do the job, i.e. a cost of around $350. This was much more than the average weekly rent in that day.

So spending $250 is not only good value, but it makes good sense, as it is much less than the average rent.

Presentation: Keep on top of property maintenance during a tenancy. Before the tenant vacates, do an inspection and make any repairs accordingly. The cost of repairs could be small compared to the cost of an empty property.

Property Manager: Your property manager should keep you regularly updated during the vacancy period, and update you on enquiries and inspections. They will offer advice and this should be taken on board, discussed and decisions made.
Remember every week the property sits vacant 2% of it is income gone for the year.

 

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