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renovations outdo home buildingInvestors are eager to know what will happen to rents, or are they too late to lock into our greatest ever rental boom? Occupancy rates in several Australian capitals for residential rental property are now between 97%- 99%.

These high occupancy rates coupled with unprecedented demand and a shortage of housing are likely to continue to fuel growth in weekly rents.

According to data from Australian Property Monitors, a Fairfax Media-owned company, in Sydney, where the rental market remains very tight rents are up 8.8 per cent to $650 for houses in the Botany Bay area, 8.4 per cent to $1,000 a week in the Waverley area in the eastern suburbs, and 8.3 per cent to $650 in the Canada Bay area.

The API Rental Price Series Quarterly Report, states that Australian unit rental prices increased by 2.3 per cent during the March quarter, as a result of high demand for rental properties, coupled with low availability in most of the capital cities.

In Sydney, median house rental reflected a healthy increase of 1.0 per cent, while the median rental for units and apartments jumped 2.3 per cent.

The apartment's rental asking prices have outperformed rental pricing for houses in every state over the quarter.

Renters should prepare for growth in rental prices throughout 2012, driven by accelerating economic activity, housing shortages and a slow first homebuyer market.

Apartments for rent are in short supply across most capital cities in Australia. Being smaller and more affordable than houses, rents have been increasing more than the rental of houses. There is a general expectation that the rising prices of property rentals will entice potential property investors into the market, particularly if they can get up to 6% rental return.

With AUD loan interest rates now available at around 6% and USD/HKD/SGD loans from around 1.5%, a cash flow positive property is now possible.

Data for the world's cities rental returns from the Global Property Guide has shown that Sydney sits at the seventh highest in the world at present for gross rental yield. (This is what a landlord can expect as return on his investment before taxes, maintenance fees and other costs.)

The properties they used are 120-sq. m. apartments located in the city centre.

The gross rental returns (or rental yields) figures published by the Global Property Guide are based on the Global Property Guides own proprietary in-house research.

Only resale apartments and houses are researched. Yields for newly-built properties are not included.

Buyers should expect the rental yields of new properties to be lower than the gross rental yields published by the Global Property Guide.

Interestingly, data for Brisbane's West End shows gross yield for new apartments to be the highest of all the world's cities, and also had with the lowest per square metre rate to buy.

A similar analysis of Melbourne's South Yarra, Sydney's Mosman as well as Perth's CBD showed yields of these three areas, plus the West End in Brisbane, meant Australia commanded 4 of the top 6 places in terms of world rental yields.

And little understood by most Australian investors, but well understood overseas, is the price per sq metre. In fact, in some of the major property markets in the world, such as Singapore and Hong Kong where prices can easily be up to 10 times the price of Australian real estate, they only look at the sq metre prices to make a buying decision or not.

So with low per sq metre prices, and high rental yields, virtually double cities like Hong Kong and Singapore, is it any wonder investors are flocking to buy Australian real estate?

Article Source:
Australian Property Investor
January 2012

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Michael King - lead designer