Rents set to rise as landlords feel the heat from rates

Five interest rates rises in the last seven months will have an impact on Australia’s rental market, with rental price growth tipped to head back towards 7-10% over 2010.

Australian Property Monitors’ report on rental prices shows rents rose 1.5% in the March quarter on a national basis, the biggest jump in a year.

After rents rose by just under 2% in 2009, APM chief economist Matthew Bell expects rents in 2010 will once again start rising strongly.

“Over the last five years, rental growth for most of the major capitals averaged 6%-7% for houses and 7%-10% for units,” he says.

“As the economy continues to improve as the year progresses, rents are expected to get back to and exceed those longer term levels of annual growth.”

While many landlords held back from increasing rents last year because of low interest rates, poor economic conditions and fears of rising unemployment, Bell says improved job security and the recovering economy will allow property investors we’ll feel tenants are better placed to deal with higher rents.

“Last year was a good year for the renter and now they will be a bit more capable and willing to accept some increase.”

Rising interest rates will particularly add to the costs of those property investors with mortgages, forcing rental costs to rise.

Improving rental yields are likely to tempt more investors into the property market, which Bell says will add further pressure to house prices.

However, Bell says the release of home lending data indicates some of the heat should start to come out of house prices later in 2010, although prices are more likely to plateau than fall.

According to APM’s figures, Darwin was the hottest market, with rents for houses surging 10% in the quarter to $550, while rents have climbed 14.6% in the last 12 months.

Median Weekly Asking Rents - Houses

Median Weekly Asking Rents - Units

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