At the moment, the realestate market is becoming more and more a renters market. House prices may be going through the roof but the rent hasn’t. Rent hasn’t gone up acordingly because wages haven’t gone up.
The bubble will burst because people are getting more and more on the financial knifes edge.
The reason country properties were so appealing was that the base rent for country towns and inner city properties waere proportionally similar. However, there was a big difference property prices.
This made the % return much higher for country properties. This is why +ve returns were posible.
But as country prices have gone up, +ve return properties will be gone unless the properies are out of the country town. As these properties are limited so too are the number of people looking for properties to rent there. Then how well paid will these people be to pay the rent asking to make the property +ve return?Me too.
It’s dead set frightening to see the prices of houses in the major country towns in Victoria as compared to 2-3 years ago.
The locals shake their heads in disbelief.
Having said that, my guess is that the property prices will not drop much in those towns when the bubble deflates, but there could be some stagnant prices for a number of years.
Actually, I’ve had agents suggesting rental increases on my Brisbane properties. But buying in those markets now would be a seriously negative cash flow proposition.
Personally I believe that capital growth and rental growth are counter cyclical to each other on the whole. It when the building of new properties slows down that the rents rise,any thoughts?MJK
According to the latest BIS/SHRAPNEL REPORT,
it would be unwise to sell Queensland property at the moment.For further clarification with a state by state summary go to the website below and obtain their latest newsletter [free subscription].Bryce Inglis[
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http://www.ipal.com.auMany people speculate about country towns ability to tolerate a downturn in jobs (higher unemployment). When higher unemployment does occur (not if), then I believe that country towns will be hit harder as people are forced to find work in the major cities. The economies of scale favour cities resilience to cycles much more than regional centres. As is always seen in the property world, any and all areas perform well in a boom but good inner city areas perform better in downward movements of the cycle from a price and rent point of view. The relationship between property prices and rents is another complex issue so I wont go into this now.
Argyle,
Rental values are stagnant and yields are falling due to demand/supply factors more than wage levels. The simple fact that we are all running around buying investment properties is increasing the ratio of IPs to PPORs. With a static number of tenants there too many properties available and consequently rents are steady or falling. If wages rose I wouldn’t expect that to necessarily lead to tenants paying more than the market dictates they have to. It would seem that we don’t have to look any further than the ambitious breed of people represented on this site for the forces of the change in rental yields.
I worry about anyone living on the ‘knives edge’ in an economic environment such as we are enjoying at the moment, where they can lock in an IO loan for 5 years at a little over 6%. Doesn’t historically get much better than that.
I certainly agree that +ve IPs are increasingly hard to find even in small towns these days and what’s further Houses Only got it right when he questioned the long term risk profile of increasingly remote IPs.
I own a property. A two bedroom townhouse. When l bought it 85 000 l was renting it 160pw. It’s now valued at 260 000 i rent it for 190pw. Tried asking for more, but people wern’t interested.
To me it seems and feels as though people will only spend a certain proportion of their income on rent. As wages haven’t gone up as much as property prices. What is in their pockets and what is left after they work out how much money they need to live. if the rent is too much then you have to live with vacancies.
Gidday argyle610,
What you have said is probably representative of a large portion of the country at this time. Another alternative would possibly be to change your stratergy and look for a different type of property. Possibly looking at comercial instead of residential. That might help provide you with a forward momentum.
Cheers,
Spider
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