Why 2022 is a better property investment year than 2021
- Australian median rent values increased 7.5 per cent in the year to July
- Rental growth only half of inflation over the past decade
- National vacancy rate just one per cent
Much has been written about the increase in weekly rents that have been recorded over the past year. Investors can be left thinking if 2022 is a better property investment year than 2021?
According to CoreLogic, in the year to July, Australian median rent values increased 7.5 per cent, which is the strongest annual appreciation in rents since December 2008.
However, some of this rental growth was clawing back price reductions that took place during the first year of the pandemic.
Indeed, prior to the pandemic, rental growth had generally been benign, or even falling, for the best part of a decade – contrary to some media reporting.
There were many reasons for this, including ample supply of investment properties and record low interest rates.
But something happened in 2017 that started to upend that equilibrium, with lending restrictions being instigated that mostly targeted investors. The Australian Labor party were also threatening to remove the negative gearing tax policy because of so-called “greedy” investors rorting the tax system (utter nonsense of course, but that’s what they did). This naturally made many investors wary of purchasing and adding to the rental supply. Then we had floods, then we had bushfires also scaring investors away.
So, unsurprisingly, we saw the volume of active investors in the market start to fall, because many simply couldn’t secure finance to transact, or were being put off by ill-advised shadow government tax policy planning.
The property boom in Sydney, and partially in Melbourne, in the mid-2010s had also added a huge supply of rental properties in those locations, which meant that rental growth was low for a while. A huge influx of new supply in Brisbane had the same effect.
However, by July 2019, that supply was being soaked up, plus investors were thin on the ground, so rents started to strengthen somewhat… until the pandemic hit, and they started falling again.
New industry research
Indeed, new exclusive industry research has found that rents have grown at only half the rate of inflation for more than a decade – even after allowing for the past year’s rent increases and the current inflation spikes.
The Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA) joined forces to highlight the financial reality for millions of property investors in the face of sharply rising ownership costs.
The research – using the Australian Bureau of Statistics Consumer Price Index from June 2012 to June 2022 – found that rents increased by just 11 per cent nationally over the decade, but inflation rose by 25.6 per cent over the same period – a shortfall of nearly 15 per cent.
On an annual basis, rents increased by about one per cent per year, versus average inflation increasing at more than two per cent each year over the decade.
So, you can see that rents didn’t do very much for a long time, because of the reasons I outlined at the outset of this blog.
However, there are a number of moving parts at present, which is upending that state of play, which can lead to an opportunity for better property investment in 2022.
According to SQM Research, the national residential vacancy rate was just one per cent in June – the lowest in decades, plus investor activity is still below historical averages. And it’s no wonder considering the bad rap that investors continue to get.
That means that there are not only fewer rental properties available for tenants, but investors are still not adding the usual supply of rental stock, which will mean the situation will continue to worsen for some time yet.
As you no doubt know, too, the heat has come out of many property markets, which is a good thing for both homebuyers and investors, and we are starting to see more stock hit the market as well.
Of course, interest rates are rising, but they still remain at levels well below recent historical averages – outside of the emergency rate setting during the pandemic.
While any professional working on the buying side of a transaction was run off their feet last year, we were often so busy because there was such little stock available and plenty of emotional buyers paying silly prices.
Now, though, not only have markets moderated, but so have the prices that vendors are hoping to achieve.
When you add in the fact that there are fewer active buyers as well, you can clearly see why now is such an opportune time for investors and homebuyers to start – or continue – their real estate investment journeys.