Seven-year low in rental stock welcome news for WA property investors

Momentum Wealth
  • Rental stock levels in Perth have dropped to the lowest level recorded since November 2013
  • Rental listings fell 48% annually in some regions, but disparity remains between different areas
  • New building stimulus will have minimal impact on rental stock in established market, but negative impact for outer suburban areas
  • Record reductions in rental stock could prove positive news for some Perth property owners, according to property investment consultancy, Momentum Wealth.

    Recent data from the Real Estate Institute of Western Australia showed that listings for rent dropped below 5000 to 4676 listings in the week ending 31st May – the lowest rental stock levels recorded in Perth since November 2013.

    Team Leader of Momentum Wealth’s property management team, Amanda Kroczek, said the return to a downward trajectory in rental listings comes from a renewed uplift in leasing activity and limited new stock coming to market.

    “Despite an initial slowdown in tenant activity in response to social distancing restrictions and market uncertainties surrounding COVID-19, REIWA data showed that leasing levels rebounded by 27% in May which, combined with the limited new stock coming on stream, has supported a continued reduction in rental stock.”

    “These factors have also supported the resilience of rental prices across Perth’s leasing market over the COVID-19 period, with the median rent holding steady at $350 per week, and this could actually be primed to increase if current trends persist” she said.

    Stock reduction varying across the market

    However, Ms Kroczek said while tightening stock levels meant some regions could be well positioned for a return to rental growth once the emergency period is lifted, the effects are not being felt equally across the market.

    “While some regions such as Perth’s North-West suburban corridor saw rental stock reduce by over 48% in the year to June 2020, this tightening is not evenly spread across the market, with some areas such as Perth’s Inner region recording a much lower rate of reduction at 15% – largely due to the large composition and continuing supply of apartment stock in these CBD areas,” she said.

    Ms Kroczek said property owners need to remain conscious of local market conditions when determining their rental strategy.

    “Given the disparity of performance across the market, it’s really important for owners to work together with their property manager to ensure they are setting the right pricing strategy for their individual property and the conditions in their local area to make sure they are maximising their property’s performance and mitigating the risk of costly vacancies.”

    The property management team leader said owners in these low stock locations who aren’t in a position to increase rents need to remain proactive in their rental strategy.

    “While rent increases will not be permitted for lease renewals and existing tenancies until the end of the emergency period in WA, owners in locations benefiting from low stock levels should continue working with their property managers to ensure they are positioning their properties to leverage these anticipated improvements when the market re-adjusts,” she said.

    New building stimulus will have minimal impact on established rental market

    While there’s been some speculation as to whether new building stimulus measures could lead to increased rental supply in the medium term, Chairman of Momentum Wealth’s Residential Investment Committee, Emma Everett, said the established rental markets will continue to benefit from tighter stock levels.

    “While we may see some investors leverage the State grants to build or develop, these stimulus measures are primarily aimed at owner-occupier and first-home buyer markets, so we’re not anticipating a huge influx in rental stock, particularly in suburbs that are already tightly held.”

    “Even for the small segment of tenants looking to build their own property in future, their exit from the rental market will still be delayed due to the lag in construction, and the overall impact will likely be minimal,” she said.

    Ms Everett said areas with the capacity for high volumes of building activity, such as those zoned for high-density dwellings and outlying greenfield development areas, would be most impacted by the changes.

    “We do expect to see more apartment supply come on stream as development projects get underway due to increased off-the-plan activity, which will again have the largest impact on those higher-zoned areas such as Perth’s inner city.”

    “Likewise, we’re already hearing reports of higher demand for vacant lots in Perth’s outer-suburban housing estates, so investors holding existing properties in these locations may well find themselves facing increased rental competition once these dwellings reach completion,” she said.

    Ms Everett said actively monitoring the market and gaining the right advice on adapting rental strategies to align with local conditions will be key for owners.

    /Public Release.