When I read articles from the media, there is a lag between what they report and what’s happening right now. I am outlining what we are experiencing as property managers on the Sunshine Coast. I’ve also asked around and what we are seeing is the same for most property managers on the Sunshine Coast Rental Market.
SUNSHINE COAST RENTAL MARKET IS NO LONGER BOOMING
About 12 months ago, the rental market was out of control. I would get as many as 200 inquiries and over 70 applications on a property. It has now been slowing for the last few months.
RENTAL PRICES ARE SOFTENING JUST A LITTLE
About 12 months ago, it was possible to considerably increase rental prices due to market demand. A few months ago, this started to soften. Recently I had a property advertised for $600 PW with no interest and had to make a small adjustment to $580pw to get people to inquire and apply.
I see online some tenants mentioning they have just had a big rental increase. If that’s so, I can only assume it’s because those tenants did not have a big increase 12 months ago, and their property manager or landlord is just catching up now.
When the rental market was booming, it was common for people would offer to pay over the advertised price or offer to pay rent in advance.
While a property manager cannot ask for this, tenants can offer it. While both would still assist a tenant in being approved, it’s optional now.
WHAT ARE SOME REAL-LIFE EXAMPLES?
Here are a few properties we leased in Nov 2022. You’ll see some only had 4 applications. While the highest was 87 applications, that is now very unusual. You’ll also see the longest took 49 days to lease, with the shortest being 7.
While we can lease a home in less than 7 days, what slows things are getting application reference checks back.
Buderim $850 PW 49 days 8 applications
3 bedroom home, with potential dual living that’s had a quality renovation
Palmwoods $500 PW 21 days 87 applications
Small 2 bedroom home on around 900 sqm surrounded by farmland
Woombye $700 PW 10 days 4 applications
2 acres with older 3 bedroom home and large shed
Mooloolaba $800 PW 9 days 23 applications
Modern 3 bedroom home, with ducted air and great yard
Bli Bli $800 PW 8 days, 6 applications
Large 4 bedroom home, with 2 large living spaces and pool
Palmwoods $800 PW 7 days 11 applications
Near new large 4 bedroom home, with 2 living spaces
Nambour $575 PW 24 days 25 applications
Small 3 bedroom home, with 1 living room that’s just been repainted with new carpet in quality street
Mooloolaba $750 PW, 9 days, 32 applications
Older 3 bedroom home, 2 livings spaces, outdoor spa
Palmview $600 PW 9 days 14 applications
New 3 bedroom terrace home with 1 living
Palmwoods $785 PW 7 days 4 applications
Near new 4 bedroom home, with 2 living spaces, butlers pantry and large backyard
Recently I put a property onto the market for $600 PW that would normally have been snapped up. 2 weeks later, I had to adjust it to $580 PW to get interested, and even then, interest was low.
For another property that we had been leasing for $950 PW, we had to adjust to $900 PW and now $850 PW, and it’s still empty 4 weeks later.
Another I have just put on the market was rented for $650 PW and is now advertised for $700 PW, so a $50 PW increase, and I have had 3 inquiries.
INTEREST RATES AND REPAYMENTS
Interest rates are impacting property investors’ repayments. I had assumed with increased repayments, investors would have no choice but to increase rents even more. But here’s the thing. It’s not the landlord’s choice. A landlord can only demand a higher weekly rent if a tenant is prepared to pay for it. Landlords need to be prepared to meet the market on possible rental income.
Luckily there are many things investors can do to manage the increase in repayment.
- Get a broker to refinance for a better rate
- Get a PAYG withholding variation
- Ensure they are getting market rent
- Use a property manager that pays them weekly (Asset Agents does this)
- Maximise deductions with a depreciation report
LANDLORDS WANTING TO CASH IN ON THE RENTAL CRISIS
Yes, there is still a rental shortage on the Sunshine Coast Rental Market. The shortage is for affordable rental properties. So properties are under $400 PW, but many tenants can’t afford that. It is the crisis.
Of course, landlords in higher price brackets have also benefited as rents have dramatically increased, but there is an affordability ceiling.
WHAT HAPPENS WHEN A LANDLORD ASKS FOR TOO MUCH?
Poor quality tenants apply. Tenants with bad references are forced to pay a premium to secure a home, so they apply for overpriced properties. The landlord then needs to make a decision. Approve a tenant with poor references and suffer the consequences or adjust the rent to meet the market and secure a better quality tenant.
INFLATION
I don’t watch the news or listen to anything about the economy. Or even understand it. I’m a real estate agent and property manager. What we do know is inflation is high & the cost of living is now more expensive. Electricity, fuel, food, even used cars & Netflix are all costing more. While it makes sense that rents should now be going up more here on the Sunshine Coast Rental Market, they have already done that. They have had about 12 months of big increases and have reached some peaks.
LIKE EVERYONE, TENANTS ARE TIGHTENING THEIR BELTS
It makes sense. As costs everywhere rise. Everyone needs to keep a close eye on costs. For tenants, rent is their biggest expense, so they want to cut that back as much as possible.
MORE PEOPLE SHARING
We are seeing a lot more people sharing. Strangers are now sharing a house. Or siblings are sharing with their partners. Kids are staying home longer, or elderly parents are moving in to help with rent and look after grandkids.
LOTS OF BREAK LEASES
We have a lot of tenants now breaking the lease. We are a small agency with as many as 4 a month. Considering we used to get less than 4 a year. These break leases are mainly due to 2 reasons. Tenants have now bought, realising the rent they pay could pay a mortgage, or they have moved in with parents or friends to make renting affordable.
HOW DO WE SET RENTS?
When a tenant’s lease becomes due, we don’t just pick a figure out of the air. I spend time doing research. I look at what comparable properties are for rent on the market right now and what comparable properties have recently been leased. I am the only person in the office who does this. I do all the research as it’s very important. I also look at how many days a property took to lease and what month it was leased.
Suppose comparable properties are all leasing for around $750 PW. It’s impossible to offer the tenant a lease renewal for $850 PW as the legislation would deem this excessive. The lease offer needs to be comparable to the market.
SHOULD INVESTORS SELL?
Earlier this year, I wrote that if any investors wanted to sell in 2022, they should do so before Aug 2022. The top of the market has now been reached. Investors need to realise that property investing is long-term. I will only sell now if it’s part of your total financial plan. For me, I’m not selling. I’ll continue to hold and ride out the rate rises and slow down in the market.
The marketing will likely decline for at least the next 12 months. Many economists suggest the market will decline for at least the next 2 years. Sure, that’s possible. I’ve always seen over the last 20 years that once the market turns back, any decline in value is recovered in the property cycle. I bet many people can’t recall how hard and terrible the global financial crisis was.
As an investor, if you plan to sell in the next 12 months. You should sell now as your property will be worth less throughout 2023, but with few investors buying, you would need to consider when your tenant’s lease ends and sell with that timing in mind.
This is now what most investors need to consider. With few investors now buying, they need to target buyers who would like to live in the property, which is why going to market with the lease end date in mind is important. Consider how the property presents with the current tenant in place and whether it would be more saleable if it’s empty.
With the new legislation changes, if you are considering selling, you need to speak to someone experienced in property management and sales, like myself, to ensure you get the right advice.
WHY ARE SO MANY TENANTS STILL MISSING OUT ON PROPERTIES
While the Sunshine Coast Rental Market is slowing and rental prices are softening, there is still a demand for property. For several years now, most agencies only accept electronic tenant applications. Unfortunately, a high percentage of applications still need to be completed. How these online systems work is a tenant will enter their previous property manager’s details. The system will then automatically send a rental reference request, and that property manager will never reply. Most tenants would wonder, why don’t we ask the old property manager? Unfortunately, we start processing applications where the references have been returned, then if no one is suitable, we will start to chase up others, but usually, we don’t need to.
THE BOTTOM LINE
So the best thing tenants can do is first chase up their old property managers to ensure they got the rental reference request and have returned it. Add in as many previous property managers as they can. If a tenant sends us 1 rental reference and another sends us four, we tend to look at the application with 4 rental references. Employment is another example. If a tenant has only worked for someone for 12 months, it helps to know where they worked before and for how long. What we are looking for are consistency and reliability. Lastly, a tenant that has only ever rented through private landlords makes it very hard for an agency to approve as it is our experience that private landlords can’t supply us a rental ledger or even really know what we expect from a tenant.
In summary, the tenant ideally should have multiple references from property managers and check to ensure they have completed the reference check. Add in multiple employment details so we can see a history of employment.
Recently I had two tenants come to me to ask why they could not get approved by any agency. Having a quick look at their applications, I needed to make a few small changes. A few weeks later, they both got approved.
It has given you a small insight into the Sunshine Coast Rental Market for late 2022. If I can assist anyone with their property investment needs, please get in touch with me.
