Outlook for property rental rates in 2010

The RBA left interest rates on hold yesterday in view of the instability in Europe and tell-tale signs that its 6 rate hikes of 25 basis points each since October 2009 is beginning to take its effect on the Australian economy.

These tell-tale signs include, among other things, a weakened consumer sentiment, cooling auction clearance rates, decreasing rate of new home loans and lower new dwelling starts.

However, property investors and landlords who have been slugged with the additional 1.5% rise in interest rates since last year will be feeling the heat and whilst rents rose by just under 2% in 2009, Australian Property Monitors chief economist Matthew Bell expects rents in 2010 to grow strongly from the back of the weak growth in 2009.

“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.”

Many property investors and landlords deferred increasing rents during the global financial crisis in 2009 due to the low interest rates, uncertain and volatile economic conditions and fear of unemployment. However, conditions have improved since and there is greater job security in 2010 and the recovering economy, although patchy at times, offer some renewed hope for optimism for tenants to deal with the effects of higher rents.

In general, tenants realise that 2009 was a good rental year where rental rates were modest and landlords were tentative in exerting a heavy-handed approach.

Bell expects prices to cool and plateau rather than fall towards the latter part of 2010.

According to APM figures, the strongest growth in rents were recorded for houses in Darwin which rose by 10% in the quarter to $550, while rents have increased by 14.6% in the 12 months to March 2010.

Source: Australian Property Monitors

Source: Australian Property Monitors

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