Residential Property Risks and Opportunities Report
17 May 2021

Rental shortages beginning to bite

Ultra-low interest rates and FOMO drive dwelling values to new records with double digit growth still on the horizon for many areas in the country.

Overall, rental markets are now tightening as Australians move away from share houses and denser living, and household sizes within the rental pool may also be declining. 

This is leading to a chronic shortage of rental properties across many suburban, outer suburban, coastal, and regional locations, and will be reflected in surging rents in the June 2021 quarter and beyond. 

As previously projected, the housing market has shifted through the gears to the point where fear of missing out (FOMO) has become a major factor. 

It remains likely that the ultra-low interest rate environment will remain in place for at least for the next 24 months, and possibly longer.

This, combined with only a low availability of stock of quality assets in popular areas, has been reflected in very strong auction clearance rates and rising prices. 

It is projected that both Sydney and Melbourne will deliver double digit price growth in 2021. Many SA4 regions are also likely to deliver double digit growth in 2021. 

In particular, houses with a high land value component and scarcity value are likely to enjoy very strong demand and capital growth, both in the short and long term.

Our key underlying assumption is that the COVID-19 vaccinations that have been rolled out will provide a sustainable solution to the virus over time.   

As mentioned in our previous reports, our market research shows that some sectors of the housing market continue to represent an elevated risk at the present time, in particular inner-city apartment markets, which have been oversupplied and have experienced falling rents as Australians look to avoid the higher density locations. In addition, there remains a high degree of uncertainty in relation to immigration, which is a major demand factor for rental apartments.

These risks, combined with high vacancy rates, increase serviceability (i.e. cash flow) risk, and consequently, have made these apartments less attractive to investors, who represent the main cohort of buyers in those areas.

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