Rental price increases of up to 7% are anticipated for Australia’s residential property market and are likely to increase demand for National Rental Affordability Scheme (NRAS) properties from both tenants and investors.
Independent market analyst RP Data recently predicted increasing rent prices for the coming year. Rents in Australian capital cities increased by 1.4 per cent during the last three months of 2010 and rose by 4.2 per cent during last year. This means that the discounted rents offered by NRAS will be in great demand as rents rise through 2011 with tenants seeking relief from increasing prices. Also, rising rental yields will mean that property investors are likely to flock to NRAS properties in 2011.
For investors, market rental increases will absorb much of the 20% reduction in rent they offer to tenants as part of NRAS so the investment return is improved. Investors will also be keen on the high tenant demand for their property because it offers more choice of quality tenants and a lower vacancy rate.
What is driving rental prices up?
As population growth in Victoria, and particularly Melbourne, continues to be strong, there is increasing competition for rental properties. This drives rental prices up, in turn making it harder for renters to become owner-occupiers, and thus keeping more people in the rental market, further increasing competition.
This phenomenon is supported by evidence from housing purchase statistics. The latest housing finance data from the Australian Bureau of Statistics demonstrates that last November Victorian first home buyers totaled just 16.3% of all owner-occupier purchasers – the lowest proportion of first-home buyers since May 2004.
What does this mean for property investors?
This is great news for property investors for a number of reasons. Firstly, there is the obvious benefit of increased rental yield from investment properties. Secondly, a competitive rental market means that vacancy rates will remain low and you won’t have an empty property sitting on your hands for extended periods of time. Finally, it means that landlords will have a great selection of tenants to choose from and can afford to be selective in their choice of tenant.
How does this affect NRAS (National Rental Affordability Scheme) investments?
High rental yields and a tight rental market are great for NRAS investments too. As you may or may not know, owners of NRAS approved properties agree to rent their property at 20% below market rent to eligible tenants in return for generous government tax free incentive payments. One of the great things about the NRAS scheme is that the rental for the property is genuinely held in line with the market rental value of similar properties. This means that as rental prices increase, so will the rents paid by NRAS tenants – just with a 20% reduction applied.
Furthermore, as rental prices increase, tenants are increasingly on the outlook for a good value rental property. NRAS properties, with their 20% reduction in rental price, will become even more attractive to eligible tenants. This means that NRAS property investors can expect to have even lower vacancy rates than normal residential property investors.
All in all, it’s a great time to take advantage of the benefits offered by the NRAS scheme. Onyx has recently made available NRAS approved apartment properties in the Melbourne CBD, right in the heart of where the greatest rent increases are expected. Find out more about these properties on our NRAS property listings site, or pick up the phone and give us a call on 1300 1400 15 if you’d like advice on purchasing NRAS properties.