It’s a great time to own investment properties in Sydney. In the same period that the median selling price for a house only increased by 5.6pc, median weekly house rents in Sydney grew by 25pc to $750 per week.
In further good news, the new Labor government has said it won’t change tax breaks on property portfolios. Investors are looking for a hedge against inflation and embracing depreciation and other tax deductible expenses whilst making the most of low vacancy rates and positive yields.
After a period of relative inactivity, investor share of mortgage activity has risen from record lows of about 23 per cent in early 2021 to almost one-third as tough prudential controls have been eased.
These are all things you can read about in the news, however as someone at the coalface everyday, I see and hear things about the market that newspapers and news readers won’t tell you. Here are some of the obscure observations and trends I’m seeing in the Lower North Shore lately.
There are pockets of the Lower North Shore that just make more sense to an investor. For example, the return you get on a Cammeray house is insanely good compared to the return on a similar house in other sought-after suburbs two kilometres away. You can buy a property in Cammeray for say, $3 million and get $2,000-$2,500 a week in rent. But, in a nearby suburb where the buy-in price is higher the yield is simply not there.
Townhouses always lease and always deliver a really steady return. They’re just so dependable as an investment. Their rents don’t oscillate with the market; they’re just this niche asset that is always in vogue, particularly in Neutral Bay, Cremorne, and Cammeray. Townhouses are really popular because they’re ideal for people moving from apartments to house-style living, who don’t want to go into a house with all the extra work (and rent) that is required. And then, you’ve got “house people” that are downsizing and don’t want to maintain houses anymore who love the idea of a townhouse rather than an apartment. Then you’ve got small families, and apartment-sharers as well. Townhouses are really versatile and appeal to multiple parties.
It’s funny, I keep hearing tales of tenants being unable to get into this ‘tight’ rental market but we’re finding the behaviour of tenants to be more aligned with an oversupply. For instance, we’ve got a $4,000-a-week rental available right now, and while five people have enquired, none have kept their appointments. Similarly, I’m routinely hearing about tenants applying for upwards of ten properties and not actually wanting any of them. It’s strange. Applicants are just applying for properties and then withdrawing, saying, “I don’t want to rent there. I’m going to keep looking.” Others are just not turning up for inspections or saying they don’t have time to look at them. It can’t be that dire for tenants who are being particularly fussy and flaky right now. Where is this influx of tenants that we were told was going to happen post-lockdown and border closures? My point is that it’s not the tenant tsunami we were all promised post-Covid.
If your investment property has a pool, my experience is that it will lease within a week. Tenants in the top end of the market who are prepared to pay a premium in rent want to have all the boxes ticked on the dream home: and the pool is always one of the boxes. If you’re going to live in the most luxurious part of Sydney, you want the luxury home and lifestyle to go with it. The places with pools are seldom vacant for more than a week.
We all know that, with the pandemic, there was a mass exodus of one bedders and studios. University students, hospitality workers, and even just singles boycotted the one-bedders either due to a shift in the stability of their employment or the harrowing prospect of another lockdown in a small space. Now, however,I’m pleased to report one bedroom apartments were our strongest market for at least the first quarter of the year. A lot of people returned to the rental market who were previously absent due to worries about job and income stability. Curiously, I’m seeing a lot of new couples moving in together too.
Weirdly, our worst performing market segment for rentals right now is the two-bedrooms between $700 and $1000. This segment is usually the bread and butter that investors can rely upon but there are just too many of them available right now. And there’s little to differentiate them and draw in a new renter demographic: the same pool of people who rent the $700 properties are the ones who eventually upgrade to a view or balcony at $950.
The top end of the rental market – $3000 per week and up – is seeing some curious behaviour at the moment. We saw 71 people through a waterfront in Cammeray this month, with many prospective tenants looking to the future. The common story is either construction on their home is scheduled for coming months (some don’t even have DA approval yet) or they’ve just sold and while settlement is a way off, they need a rental to bridge the gap between acquiring their next home and exiting the old one.
As always, I’m happy to discuss my observations of the market with investors in person. After all, we manage all types of residential properties across the Lower North Shore and see a lot of the trends and shifts well before they’re reported.
Head of Investor Performance & Growth
0403 830 538