There’s a possible silver lining for investors in the prediction from industry research group CoreLogic that rent growth will slow next year.
Increases in interest rates, coupled with a historic shortage of rental properties across Australia, have been the main contributing factors to the rise in rents.
CoreLogic has recorded 35 consecutive months of average rental increases. However, that trend has been easing in the capital cities for the past four months and has ground to a halt in regional centres.
Falling interest rates in 2024 is likely to help contribute to a reduction in costs for investors and landlords.As CoreLogic says, you can correlate the rise and fall of investor rental incomes with the cash rate set by the Reserve Bank of Australia.
The silver lining for investors will not be just a reduction in loan costs but also a growth in the value of their properties as the market continues to regain strength next year. Capital growth and rental income are the foundations of most investor portfolios.
National rents rose 1.6% in the third quarter, a slight slowdown from the 2.2% registered in the previous 12-week period.
In the year to September, rents have increased 8.4%. Rents now take up an estimated 30.8% of tenant income, which is the highest level nationally since 2014.
CoreLogic says the average rent has gone up $134 per week but the 1.1% vacancy rate, the worst number since November 2012, remains critical.
CoreLogic has the following predictions for rental properties in 2024.
- The cash rate should fall, encouraging additional landlord investment and persuading more renters to become first-time buyers.
- Income growth may slow as renters struggle to afford current fees.
- Some tenants may move to more affordable areas, further dampening rent rise prospects.
- Investor loans are on the increase, which the Australian Bureau of Statistics has also reported. This means two things: it’s a good time to invest, and there will be more competition for tenants in 2024.
- Unemployment will likely rise due to the rate increases that began 17 months ago. This means that real income growth is expected to dip, putting an additional squeeze on tenants struggling with the cost of living.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.