Rents On the Up

The recent interest rate rises are doing what the RBA had hoped in terms of slowing down the demand in the property market in a general sense. By increasing the cash rate the flow on effect is felt across all facets of the residential market.

The first impact is the reduction in borrowing power, as the banks move their lending assessment rates higher, which means borrowers are offered less. By offering less, some potential buyers cannot secure the lending they require to buy in the location they want to live. Borrowing power is also linked in with affordability. With potential buyers not having the ability to afford the lending required to secure a property in their chosen location, they increase the demand for rental properties within that localised area.

RP Data ‘s Property Pulse reports – “Weekly rental rates in Australia’s capital cities climbed $133 for houses and $132 for units between August 2005 and February 2010. Current capital city rentals rates are currently recorded at $440 per week for houses and $417 a week for units. Landlords have enjoyed excellent capital growth increases over the past 12 months, but we cannot crystalise these increases, so they currently sit as paper profits.

As an active property investor, the recent increases in interest rates have resulted in an increase of my cost base for the business of running rental property accommodation. Like other business faced with increases in costs, it’s a realistic expectation to pass on some or all of these increases to ensure these investments remain viable. Before making such a decision, you need to ensure the market can accommodate your next increase and you also need to weigh up the increase and balance it against the quality of tenant you currently have renting your property/ies.

Those of you with investment properties and those seeking to purchase their first property need to do adequate research in the area of rental returns. The best place to start is with the local property management real estate agency, as they have the latest knowledge on a particular market rates.