Rental market signals a recovering WA market – Shaun Strickland

According to Momentum Wealth’s research advisor Shaun Strickland, the improvement in the rental market in Perth could translate into more than a market recovery.  He joins us with the latest on the WA market
Kevin:   You know, there’s nearly always an upside to any downturn in the market. In Western Australia, there has been increased leasing activity and the slow down in dwelling construction, which has caused a decline in listings for rent. Result of this has been an increase in Perth’s average rental figure. According to Momentum Wealth’s research advisor Shaun Strickland, the improvement in the rental market in Perth could translate into more than a market recovery. He joins me to explain. Shaun, thanks very much for your time.
Shaun:   Yeah, thank you Kevin,
Kevin:   What do you see
Shaun:   Glad to be here.
Kevin:   Yeah, what do you see happening in the short term given what you’re seeing there, Shaun?
Shaun:   Yep. So we’re seeing quite the correction in rents and vacancy rates at the moment, so the big one probably would be more the vacancy rate, which we’ve seen drop about half a percent in a mere few months. So we are seeing just the general levels of stock constrain quite quickly, and this will play its part in terms of rental price. So what we can see there potentially would be a lift in rental rates in the short term.
Kevin:   A lift in rental rates in the short term. What about the long term, what do you see as the long term effect?
Shaun:   Yeah, so the long term effect could be quite an interesting one. That’s where we’re talking about the fact that we’ve got perhaps an increase of population on the way, with a shortage of construction. Meaning, we could be in a bit of a sticky situation with rental rates going up quite considerably, and vacancy rates lowering down sort of back to that two, two and a half percent rate that we saw back in 2012, 2013.
Kevin:   Yeah well –
Shaun:   That’s a –
Kevin:   Yeah, well developers are really good at reading the market and reading it ahead of time almost. It’s a bit like-
Shaun:   Yeah.
Kevin:   Sometimes build it, they will come. Well, what’s the confidence? Is it returning to the market for developers? Are they willing to build? In other words, what’s the pipeline look like? The building approvals?
Shaun:   So, that’s the big one. The building approvals are down quite drastically. So, they’re about 45% down from the page in December 2014. And as we know with dwelling approvals, it takes approximately two to three years for something to get built even after approval. So the fact that dwelling approvals are bottoming out at that 19,000, it’s quite a figure when we know that we’re not going to get much of that stuff coming on for another two to three years. So, I guess in more of the longer term, looking at that, that’s a bit of an issue that we could have this population growth, yet the laggy dwelling approval figures are showing that we won’t have to supply coming on stream to really capture this. And that’s what’s gonna force our rental rates back up.
Kevin:   You might have mentioned it already and if you did, I apologise for missing it, but what are the vacancy rights now?
Shaun:   Rates are at 3.9% currently, so the 10 year average is about 4.2%. So but now we’ll make the 10 year average. So, we are definitely heading down.
Kevin:   The critical time, I’m told anywhere is somewhere between certainly over three percent, but between three and four percent for it to become a pretty hot market. I think the last time we saw a significant downturn, a rental shortage was back in 2012, 2013 when vacancy rates fell below two percent. Do you recall what happened then?
Shaun:   Yeah, that was an interesting market that one. When talking to our property managers, they were saying that they would get people offering $50 above asking rent, and it was just real hot competition for properties. Lots of people that were looking for rentals end up having to go to more substitute type suburbs just because they couldn’t get in their first preference.
Kevin:   Are you –
Shaun:   It is a bit dire straits and people are missing out on being able to live in a suburb that they want to live in.
Kevin:   Yeah.
Shaun:   But that’s what happens when you get into a super hot rental market like we had back in 2012 during the resources boom.
Kevin:   Is there any evidence of that happening yet, or is it yet to come?
Shaun:   We are seeing more people come to home opens from what I’ve been told from our property managers. So we like to keep our ear on the ground here at Momentum Wealth. It’s not just looking at the figures, but also using all of our other avenues as well. And our property managers have been saying that they’ve been seeing more people come in. Previously over the last probably couple of years, we’ve seen people who put in offers under asking, whereas it’s kind of correcting now to being leased quicker. And also, we have more people putting an offer in and actually getting that actual rate that we set it for.
Kevin:   Yeah, well it’s certainly a good sign and it’s about time we started to see some positive use coming out of WA. You guys have been suffering in a pretty tough market. So, thank you for that. We’ll keep a close eye on it as well, Shaun. Thank you very much for your time.
Shaun:   Thank you very much Kevin.

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