While all the talk recently has been around the impact of interest rate rises on borrowers, it’s important to take into consideration the fact that we’re also seeing rents increase at a rapid rate, which is actually extremely positive for investors.
Across the country, rents have risen 9.5% in the past 12 months, led by Brisbane and Adelaide where weekly rents are 12.1% and 10.6% higher respectively.
Rising rents are an attractive proposition for investors in the current market climate as higher rents will go some way to offset the impact of rising interest rates.
Given that much of the country is in the grips of a rental crisis, this can be a great opportunity for investors as there will be a number of locations that will continue to see both capital growth and rental growth because of tight housing conditions on a local level.
A great example of this is what’s currently happening in Adelaide. The market there is extremely tight with a vacancy rate of just 0.3% according to Domain.
We’re also starting to see listings with sky-high asking rents that might not otherwise see the light of day. A recent rental, that was nothing more than a room converted into an apartment, is asking over $400 per week in Adelaide – a sign of just how crazy the market is there at the moment.
As would-be renters find the market tight and rents high, there is more incentive for them to buy in that same area, which then adds to the capital growth side of the equation.
We’re seeing a lot of properties that we’ve recently purchased in Adelaide, that are coming out of lease in August and September and they will be on track to see a 20% increase in rents.
With rates on the rise, the best markets for investors will be the ones underpinned by strong local economies and with tight vacancy rates. Those are the markets that will continue to see both capital growth and increasing yields over the next few years.