November Property Update- To Rent or Buy?

Welcome to our November Perth Property Update where we bring you a unique perspective this month on the overlap between the rental and sale market, including how they are affecting each other’s supply and demand of available properties and ultimately the prices being achieved in each. Plus we also take a look at the factors involved in selling a tenanted property.

Sale Market Update

Surprisingly the number of available properties on the market over the last month has held steady at 15,300 listings. House sales over the same time have increased from an average of 900 sales per week in October to close to 1,179 sales per week in this first week in November.

This increasing number of sales or liquidity can best be explained by owners coming onto the market for sale with a much more realistic expectation of price and buyers feeling some relief from the first interest rate drop in 2 and half years.

With supply still above the long term average of 12,000 listings needed for us to return to price growth, we are still in a buyers market. However should the current trend continue, the 8.2% drop over the last year to the median house price is likely to stabilise. I for one would be happy with stability for while!

Rental Market Update

New rental leases tracked by reiwa.com increased by 6 per cent over July, August and September as new tenants soaked up housing stock being withdrawn from sale and placed into the rental market.

Over the last month we have had an influx of high end, 2 storey properties who have been on the market for longer than 9 months coming to us for Property Management. Despite having no direct comparisons for pricing, in each case we have found the rental demand at this $750+ per week end of the market to be very strong and we now have prospective tenants on standby for any similar upcoming rentals in particular areas.

Despite this additional stock flowing into the rental market, the strength of demand has seen properties available for lease fall by 20 per cent, from 3,600 at the end of June to 2,800 at the end of September. (source: REIWA)

REIWA President David Airey said that data showed that people were choosing to rent rather than buy.

“The falling stock has seen the preliminary vacancy rate drop by 0.6 of a percent from 3.4 per cent in the June quarter to 2.8 per cent in the September quarter.

“Accompanying this tightening of the vacancy rate has been a $15 per week, or 4 per cent, lift in the overall median rent for Perth during the September quarter,” Mr Airey said.

“Both the overall median house and multi-residential rents increased by $10 per week for the quarter taking the median house rent to $400 per week and the median unit rent to $380 per week,” Mr Airey said.

In September we shared Residex predictions of an increase in the Perth median rent to $425, over that coming 6 months. The prediction certainly looks to be coming true.

When does buying become more attractive than renting?

With our first reduction in interest rates, buyer confidence starting to improve, sellers being more realistic and rents continuing to increase… the prospect of buying property is starting to become more attractive for tenants.

However for an individual tenant on a fixed term lease, they will only see an increase in rent when it comes to a lease renewal or review period. So I expect the flow on affect to increasing buyer demand will be at least 6 months off and we would have to see interest rates and world economies stay stable over this time.

Selling a Tenanted Property

When does your tenants lease expire?

A crucial consideration for timing the sale of a rental property is at what date the lease is expiring because this will impact whether you will be able to give vacant possession to potential home buyers or not. If the lease date is more than 3 months away this will put off the vast majority of home buyers and your potential buyer pool will only be investors.

This is not a problem if the property has definite selling points for investors but for the typical home I would always encourage an owner to hold off selling until closer to or at the end of the lease term.

How is the property presenting?

Another major factor to consider whether to sell with a tenant in place is how the property is presenting. Some tenants have great furniture and keep the property clean and tidy at all times, they can be an asset to the sale… there are also many that don’t. I have found that it is a big mistake to try to sell a property when it is not presenting at it’s best. Even an investor is emotionally affected by presentation and in today’s market it is the difference between getting sold and going stale on the market.

Getting a great result for everybody

Tenants can often feel threatened when they find the property they are renting is going to be marketed for sale.

They suddenly feel that they could be uprooted in the next week and they will be constantly invaded by salespeople and a steady stream of purchasers rummaging through their personal belongings.

A selling agent can be enthusiastic when listing a property and this approach can scare a tenant and often have an adverse effect on the marketing.

Ensuring that a tenant is made aware before being contacted by the salesperson and their rights in relation to their lease and open inspections explained will help with a harmonious process. Though legislation requires that they allow viewing inspections to potential purchasers, the delays and legal process will cause everyone a lot of inconvenience should the process be misunderstood.

Incentives can go a long way too!  Providing a gardener to get the gardens up to scratch before the initial marketing will save the tenant a job and ensure that the property is visually appealing to prospective buyers.  Some other ideas are providing a cleaner, a gift voucher or a week’s free rent as compensation for getting the home ready for open inspections.

Think ahead and work with your tenant and/or agent to get the best result for both parties!

Signing Off

I hope you have gotten some value from this month’s Perth Property Update, I would love to get any feedback you have or requests for future feature topics so please post your comments below or send me an email at jarrad@investorsedge.com.au

If you are weighing up any buying, selling or renting decisions I am only too happy to help you work through your options to get the best and most profitable result for you. My contact details are here.

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