Sydney rental market continues to tighten with trend towards longer leases

Sydney rental market continues to tighten with trend towards longer leases
Peter ChittendenDecember 7, 2020

With some 704,000 bonds amounting to $1.043 billion in its care, the NSW Rental Bond Board’s annual report shows some interesting trends that investors I think will find interesting.

Let's look at some of the facts from the 2012-13 annual report.

The raw numbers firstly show that bonds held increased by 3.4% over the number held at 30 June 2012, new bonds increased by 2.8% but the number of refunds was far less at only 0.8%. This shows how tight the rental market was in NSW; the average bond paid was $1,483. Investors in residential property might also be interested to know that February appears to be the month when most tenancies change over after a slump in demand in January. As might be expected most tenants move out of their accommodation in December and February.

It also appears that the majority of investors use a managing agent, as real estate agents lodged 89% of bonds.

The Board’s annual report also gives a very clear picture about the relative size and growth in demand as new bonds paid are examined by postcode groupings. Across metropolitan Sydney the biggest rental markets are the Eastern Suburbs with 50,513 bonds, followed by Western Sydney (41,432) and St George (36,071). However the Board’s figures show that the three areas with the biggest increases in bonds, and hence tenancies (available supply) where: South Sydney 8.7%, Western Sydney 6.6% and Parramatta Hills 5.0%. The areas with the highest median rentals were Inner Sydney and South Sydney with growth rates of 5.4%.

An interesting observation from these figures is what appears to be an even spread of growth south, east, west and south, although in combination the west is dominate with 119,252 tenancies.

Outside of the metro area the three biggest rental markets, as measured by the number of bonds paid were: the North Coast 55,401, Greater Newcastle 35,949 and Penrith/Windsor 32,009. It was somewhat surprising to see the Central Coast in fourth spot with 29,255 tenancies. The areas with the biggest increase in supply were: Penrith/Windsor with 5.9%, Dubbo & North West 5.2% and Campbelltown 5.1%.

Between 2011/12 and 2012/13 the population growth for NSW was approximately between 1.2 and 1.4%, but over the same period the Board’s figures indicate that tenancies grew at a much bigger rate of 2.7 and 3.3%. While by no means conclusive, this contrast does clearly show that many people have relied upon rental accommodation and would indicate continued demand into the immediate future.

This is a very noteworthy annual report, it points to strong demand for rental accommodation, a trend towards longer lease terms, a well-managed private rental market with quality and stable tenancies. All of which are factors that given the extent of the Board’s activities underline the appeal of residential property investments.

The Board invests tenant bonds and the income is used to fund a number of programs including Tenant’s Advice and Advocacy ($4.63 million, this is a program jointly funded by the Board and Fair Trading), Credit Counselling, No Interest Loans Schemes and Aged-care Rights Services – many of these programs are of wider community benefit, but they along with the functions of the Board itself, helps to create a stable and transparent rental market. I think this is a positive and important function for investors, as it helps create very stable administration within a large rental market of some 704,000 individual tenancies.

Peter Chittenden

Peter Chittenden is managing director for residential of Colliers International.

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