August 2019: Chadwick Landlord Update

We’re now well and truly into Financial Year 2019/2020 and for property investors on Sydney’s Upper North Shore, there is both good news and ongoing concerns.

We explore the current state of play in the Ku-ring-gai real estate market for property investors.

Three factors causing property values to rise

It’s impossible to talk about the current property market on the Upper North Shore without acknowledging the impact of the May 2019 federal election.

The Coalition win brought stability to the federal political scene and means Labor’s planned changes to negative gearing and CGT will not see the light of day, at least for the foreseeable future.

The prospect of these policies becoming law was causing apprehension among investors earlier this year and investors were noticeably absent from the sales market in the lead up to the May election.

Then June and July brought back to back interest rate cuts from the RBA at the same time as APRA announced it was relaxing the serviceability requirements for banks assessing loan applications. Both make it easier for buyers – including investors – to now obtain finance.

There are early signs that these three factors are breathing life back into Sydney’s property market. Corelogic data shows that Sydney’s median dwelling price rose 0.1% in June and then 0.2% in July – the first rises since mid-2017.

Importantly, auction clearance rates have surged to well over 70% across the city and, by the end of July, they stood as high as 82% on the Upper North Shore, according to the North Shore Times.

This is generally considered the marker of a strong property market and should give investors some confidence that the property market has turned a corner.

Is there really an oversupply of new units on the Upper North Shore?

Anyone driving up or down the Pacific Highway would notice the impact of new apartment developments in our area. Investors would also no doubt be aware of a number of media reports of rising vacancy rates across Sydney and the assertion that new developments such as these are its cause.

But is this the reality on the upper North Shore?

The first thing any investor needs to remember is that the Upper North Shore is – and always has been – one of Sydney’s most desirable areas. It has great schools, top-class amenities, enormous lifestyle appeal and unrivalled transport links that make it easy to commute to employment centres, including the city. These all tend to be characteristics tenants look for when it comes to deciding on a location in which to live.

What’s more, rental properties here are in relatively short supply. According to data from the 2016 Census, only 17.5% of properties in Ku-ring-gai were rented compared to a State-wide average of over 30%.

While this number has increased thanks to new apartment complexes, the trend of more rental properties coming onto the market is more marked in some suburbs than others. For instance, in Gordon, the number of listings grew 203% between 2017 and 2019 and the average rent on a two-bedroom unit is now $35 a week less than it once was. Importantly, the vacancy rate in Gordon is now as high as 3.93%

In other suburbs, there has been little change at all. For instance, Wahroonga has an exceptionally low vacancy rate of 1.57%, while Turramurra and St Ives sit at 1.8% and 1.85% respectively.

Overall a tenants’ market

That said, there is no escaping that this a tenants’ market. According to figures from the Domain Rental Report, median house rents fell 3.6% over the 12 months to June 2019, reaching 2016 levels. This drop represents the biggest falls in 15 years.

Vacancy rates have also risen in the Upper North Shore and we’ve noticed that stock standard two-bedroom units especially are harder to rent than they once were.

However, as the figures show, this is true for all of Sydney and our area has generally held up well compared to most parts of the city.

The simple fact is that short overall supply and strong ongoing lifestyle appeal means that the Upper North Shore tends to remain a steady performer – both in terms of property values and rental returns – even during market downturns.

As Sydney’s population continues to grow we expect any small pockets of oversupply on the Upper North Shore to be absorbed.

Upper North Shore rentals: The figures

Wahroonga 2076Warrawee 2074Turramurra 2074Pymble 2073St Ives 2075Gordon 2072Killara 2071Lindfield 2070Roseville 2069
Vacancy rate1.57%2.57%1.80%2.62%1.85%3.93%2.69%2.87%2.74%
Median weekly rent (houses)$890$1,100$920$1,065$1,000$950$1,140$1,100$1,000
Median rental yield (houses)2.64%2.48%2.65%2.48%2.88%2.08%2.23%2.38%2.16%
Median weekly rent (units)$550$590$570$600$630$600$610$650$600
Median rental yield (units)3.73%3.83%3.48%3.54%3.85%3.67%3.37%3.18%3.58%

Source: realestateinvestar.com.au rents and vacancy rates current as of 1 August 2019

To compare these figures to Sydney as a whole, SQM data has the average Sydney rent sitting at $685 per week for houses and $501.30 for units, as of 28 July.

What can investors do to keep their rental property occupied?

 

In a tenants’ market, landlords need to be willing to go the extra mile to attract and retain tenants – especially if their property does not have features that make it immediately stand out from the crowd.

If your property is looking tired a market like this is the right time to consider investing in a quick makeover, repairs, paint and carpet, other improvements or a larger renovation in order to keep it appealing and in line with the competition.

If you are finding it difficult to fill a property, you should always listen to feedback from open for inspections from your property manager. Landlords who are reluctant to negotiate over rents may find it harder to get tenants into their property and face long, expensive vacancy periods.

Be sure to look at the numbers. After all, holding out for a higher weekly rent, and having your property vacant for more than a week or two almost always costs more than accepting $10-$20 less per week. Also, if you have a lease coming up for renewal consider offering another fixed-term lease for the same rent to keep a good tenant.

Read more ideas on how to make your property more appealing in a weaker rental market.

And finally…

The Upper North Shore market is simultaneously giving investors both hope and headaches. Rents may be down and vacancy rates up, but this is offset by a return to growth in property values.

If you’d like to know more about the current state-of-play in the Upper North Shore property market download our July 2019 Ku-ring-gai Market Report or get in touch.

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