Pressures in the rental market

Property investors often pin their hopes on rental yields, but these aren’t always the strongest source of returns. Recently, rental yields in inner-suburban markets have softened, causing some investors — especially those servicing mortgages — to get nervous.

This softening is due in part to an oversupply of inner-city off-the-plan units. These are being offered at competitive rental rates. Higher vacancies and cheaper rents have impacted on rental demand for older properties in the inner-suburbs, and a sector of students who once favoured older share-houses are turning to cheaper new accommodation, making it necessary for landlords to revise rents.

But the good news is that in some locations, housing values have soared. In Victoria, for example, there has been a 22.4 per cent rise in the total value of properties over the past two years, according to the state’s Valuer-General.

So this means attractive capital gains for investors. The trick is to strike a balance between a property’s long-term capital value and its potential for sufficient income. For those facing a challenge in this rental cycle, selling is not a good option. Instead, the most appealing strategy is to enhance capital gains by holding the property and refinancing, especially with the current availability of cheap loans.

 

Until next week,

 

Jock Bing