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Perth’s severe rental shortage is drawing investors from all parts of Australia keen to capitalise on strong rental returns, however there are signs the city is starting to enter a new two-speed market – meaning, investors need to be more astute with their asset selection.
The rental vacancy rate in the Western Australian capital has been sitting at record lows for the past two years, fuelled by strong migration and long lead times to build new stock.
Subsequently, it has become commonplace to see snaking lines of hopeful tenants at rental viewings followed by dozens of applications.
This has led to significant increases in rental prices right across the board from affordable, entry-level homes right up to the top end of the market.
However, we are starting to see a shift in the rental market as demand for higher-end properties begins to soften.
This was evident in our leasing activity for the latest June quarter, which showed properties in the higher price brackets were taking nearly twice as long to lease as those in the more affordable price points.
For example, according to our in-house data rental properties priced between $550 and $650 per week are taking on average 26 days to lease compared to properties priced at more than $750 per week which are taking 47 days to lease on average. For context, Perth’s current median rent for houses at the end of June was $650 per week, according to the Real Estate Institute of Western Australia.
|
Leasing price |
Average days to lease |
|
$550-$650 |
26 days |
|
$650-$750 |
26 days |
|
$750+ |
39 days |
On the ground, our property managers are also noticing this shift where rental properties in the higher price brackets are taking longer to lease.
Rental properties listed at the more affordable price points are still drawing high volumes of interest with dozens of groups at viewings and typically 10-plus applications.
However, at the top end of the market, we’re now only seeing a handful of groups at viewings and less urgency from prospective tenants who are happy to take more time and assess their options.
Of course this all translates to rental returns – we’re still seeing strong applications at the more affordable end, whereas the top end of the market is becoming softer.
For investors eyeing the Perth market, it means asset selection is crucial, especially for those chasing rental yields.
With the Western Australian state government and industry experts expecting high demand and low supply to plague the market for some time yet, Perth still represents an attractive premise for property investors.
However, it’s important for investors to fully understand the changing dynamics to identify the best investments as this new stage of the cycle unfolds.
Clare Christiansen is the general manager of Rent Choice.
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