Canberra’s rental market is extremely tight at the moment, which could provide strong cash flow for investors – but where should they look?
Nearly one-third of Australia’s properties are rented. This comes from the Australian Bureau of Statistics’ latest Census data and is a slight increase on the 2011 percentage (29.6 percent), and the 2006 result (27.2 percent).
As property prices rise and people shift towards a more flexible lifestyle, it’s likely we will see this increase. In some parts of the country – including Canberra – there are already suburbs where the majority of homes are rented rather than owner-occupied.
For investors, this presents an excellent opportunity to begin or expand a portfolio. The rise of the renter creates a bigger pool of tenants, and drives up competition for your investment – but what are the issues specific to Canberra’s rental market?
Lower vacancies mean higher demand
Data from SQM Research shows that in the past few months, vacancy rates have dropped significantly, now sitting around the 1 percent mark – the lowest of all capital cities on the mainland. At Civium, our vacancy rate is even lower, sitting at 0.85 percent over the first half of 2017.
This indicates a combination of high tenant demand and low supply, which can often drive rents and yields up. In a report for the Sydney Morning Herald, Domain Group’s Andrew Wilson argues that the primary driver here is a shortage of available homes.
This is evident in SQM’s longer-view research, which shows weekly rents in the year to October 20 have gone up 9.5 percent for all houses, and 3.9 percent for all units. Without reaching the costly heights of some of Australia’s bigger metropolitan centres, Canberra is still achieving excellent growth for investors on the lookout for positive cash flow.
The key here is making an investment in an area that is popular among tenants. CoreLogic argues that inner-city areas remain some of the most popular in the country for this, alongside remote mining towns and places with a sharp increase in density over the last few years.
So where does that leave you looking?
Big rental markets in Canberra
While the Census recorded a renting rate of around one in three, there are several Canberra markets with a markedly higher representation of tenants – which could provide great opportunities for those looking at their next investment. In their research, CoreLogic RP Data found that:
- 62.7 percent of Belconnen properties are rented, compared to 55.5 percent in 2011.
- 62.1 percent of Braddon properties are rented, compared to 61.3 percent in 2011.
- 58.9 percent of Civic properties are rented – a drop from 64.4 percent in 2011.
- 57.9 percent of Turner properties are rented, slightly down from 58.8 percent in 2011.
These are by no means the only suburbs where investors should look for their next purchase, but it gives a clear idea of the areas where tenant demand is likely to be high. The next step, as always, will then be to find the right balance between capital gains and cash flow. While Canberra’s value growth is steady at the moment, the above vacancy rates suggest positive cash flow is a good focal point for the short-term.
Well-outfitted homes in prime locations near amenities and public transport will always be in high demand, especially close to business centres. Find the perfect synthesis of what tenants want, and you’re likely to be set for a good investment. In this regard, strata can be an excellent option. High-quality units will usually be found at a lower price point than houses, giving steady income without the hefty capital expenditure that houses can necessitate.