Residential Real Estate Investors Return to Market
Residential real estate investors are returning to the market; their motivation can be linked to a number of factors including very competitive interest rates, the potential for a big drop in supply from 2020/2021 and a drop (even if patchy) in Sydney’s rental vacancy rates.
However, there are other factors and I also suggest that much of the appeal of comes from the depth and maturity of residential property investments. This is despite finance hurdles and a somewhat negative view as a result of debates around aspects of negative gearing and capital gains tax.
To help illustrate this appeal I’m looking at a variety of figures published by the NSW Rental Bond Board. The boards figures are very extensive as they cover a majority of the private residential rental market.
In 2012-13 the board managed 703,158 individual bonds and by 2017-18 numbers stood at 852,596 bonds.
The cash value of those tenant bonds in 2012-13 was $0.794 billion and in 2017-18 bonds held had grown to $1.5 billion. These figures help illustrate how the rental market across NSW has grown over the past 5-years.
Based on these figures the annual rental income across NSW would be around $19.5 billion, a figure that clearly identifies the importance and size of this investment sector, and one which is currently dominated by individual investors.
A Twelve-Month Snapshot
In September 2018 the NSW rental bond board recorded the lodgment of 26,718 new rental bond applications. In September 2019 just 12-months later the number of bonds lodged for the month was 29,578.
Average rentals, across all markets in 2018 was $527 and in September 2019 there was a slight drop down to an average weekly rental of $522. Not bad at time of increased supply.
The three biggest rentals markets in September 2018 (measured by the number of rentals bonds lodged) were centered around these locations:
- 2170: Liverpool
- 2017: Waterloo & Zetland
- 2150: Parramatta
This September 2019 the top three rental markets were:
- 2000: Sydney City
- 2170: Liverpool
- 2026: Bondi/Bondi Beach
Taking each of these areas the average rents, again for September were all below the average for the state, as follows:
In September 2018:
- Liverpool: $477
- Waterloo & Zetland: $384
- Parramatta: $380
In September 2019:
- Sydney: $494
- Liverpool: $476
- Bondi/Bondi Beach $382
I think that it is fair to say that in September 2018 the residential property market was starting to look particularly grim and there was indeed a very negative focus on investors.
The market was also entering a period when a lot of new supply was about to become available to rent.
The raw number of properties via a month on month base comparison went from 26,718 properties to 29,578 an increase of 2,860 properties or about 10.70%. It can also be seen that a fair proportion of the additional supply was concentrated in markets that are at times described as ‘over-built or over-supplied’.
The figures also show that in varied areas, that were ‘black listed’ by some financers, non the less remained popular with tenants. This may simply be that areas popular with investors are concentrated in suburbs that well serviced by infrastructure, and high-density development by its very nature will always exceed traditional supply levels in order to meet tenant demand. However, this does not produce substandard markets.
However, in general trends, despite the additional supply, rental movements remained reasonably stable and any downward pressure on rents looked to some extent modest. The trends are very general as they mirror average results from across NSW, none the less the figures do not show any sort of market instability, I’d venture just the opposite.
I also suggest that the figures actually reflect a very healthy investment environment, and this helps underline the popularity and resilience of residential investment properties and also the current resurgence in investor demand.
Demand for Finance Jumps
Finance figures also indicate an improved investor sentiment. In August figures published by the ABS show that investor home loans grew faster than almost any other time in the past three years. New investment loans jumped 5.7% from July to $4.9 billion in seasonally adjusted terms.
This figure was better than July’s 4.2% jump in investor loans and the largest month on month result since the 9.7% increase way back in September 2016.
In the August ABS figures total new home loans, (not including refinancing), rose 2.9% to $18.4 billion, while new lending, including refinancing, rose 4.5% to $27.9 billion, the highest monthly total since last October.
While the demand for finance and some improvement in vacancy rates are welcome signs, the long-term figures from the Rental Board point to a stable and understandably popular investment market.