Rental trends supply heading upward: Peter Chittenden

Peter ChittendenJune 24, 20150 min read

This is my final post looking at what figures from the Rental Bond Board tell as about the make-up and direction of the rental market, in Sydney and across NSW. While supply of rental accommodation has been below population growth trends, the numbers are now catching up and the popularity of investing in residential property has seen a big increase in supply, and this is slowing rental growth.

Rental Growth Slows

The general trend of median rents across the metropolitan area between 2010-11/2013-14 shows that growth in median rents has been slowing. In 2010-11 the increase was 3.1% and in 2011-12 it was 4.3%.

However in 2012-13 the figure fell below 4% to 3.1% and in 2013-14 the increase was 2.9%. Recent figures published by Corelogic RP Data and the ABS both show a slowing in rental growth with Corelogic reporting an increase of only 1.5% over the past 12 months. The ABS CPI rental series notes an increase of 2.1% over the year to March 31. Both these results confirm the trend noted in the Board’s figures.

Supply Increasing

One key factor that is putting downward pressure on rents has been the big jump in supply in NSW over recent years as more investors look to residential property, driven by falling deposit rates and the availability of cheap finance. The number of bonds held by the Board clearly shows the trend, in the following table:


Year:              Number of Bonds:          Increase:

2008/09          643,518                        ^8028

2209/10          648,142                        ^4624

2010/11          662,756                        ^14,614

2011/12          680,150                        ^17,394

2012/13          703,158                        ^23,008

2013/14          726,337                        ^23,179

The upward trend has been most notable since 2012/13 with some 46,187 new tenancies added to the NSW rental pool and the trend is sure to have continued into 2014/15.

Invest in Quality

As more stock becomes available, I suggest that investors, just like owner-occupiers should invest in quality and do their research to help ensure that despite more supply, they secure good opportunities in popular rental locations.

I suggest that no matter how strong investment demand is, you can never beat quality and with banks taking a tighter line on investment loans it’s even more important. The key items to keep in mind are by no means new, but it’s sensible non the less to keep them in mind, so I suggest a simple check list, in particular for off-the-plan buyers would include the following items to tick off.

Firstly try to get in early and learn all about the area where you might invest. Understand the quality of the project, if the finishes and fixtures appeal to you personally, then they will also be acceptable to tenants, and if there’s a competitive market this will be an important consideration.

Check that you can secure all of the finance for your investment, and always include the added cost of stamp duty and legal fees, plus take into account the ongoing costs like strata and management fees. Visit the project location, at least a few times, even more important if you’re going to invest outside of your home city. Do your research and gain an understanding of what sort of supply pipeline and tenant demand there might be when your project is complete. These are simple ideas, and I suggest the same even when buying an established property, because as supply continues to increase and we possibly see rents moderate, these factors will help secure tenants.

The trends come from a very big pool of tenants as the Rental Bond Board looks after what might soon be approaching 750,000 tenancy bonds across NSW, and so the figures are a very reliable reflection of the wider rental market.

Given all of the activity across our property market in the last 12 months the Board’s report for 2014-15 will I am sure make very interesting reading.

To read the first part of Peter's two-part post click here.

Peter Chittenden is managing director for residential of Colliers International. He can be contacted here.

Peter Chittenden

Peter Chittenden is managing director for residential of Colliers International.
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