One of the “hats” that I wear is the President of the Auckland Property Investors Association, a group that I am extremely proud to be associated with. At the beginning of each monthly meeting there is an open discussion on the rental market. Towards late last year members reported that it was getting difficult to find tenants. This situation remained for most of this year, with many saying that they have been dropping rents by 5% to 10% to secure a tenant.
However at the last meeting in August, it appears that members are starting to find it easier to secure tenants in most Auckland areas. Whangaparaoa and Central City apartments were the exception. It appears there is an oversupply of property in both these areas.
Many members said that they first tried a listing agent but had no luck, and were more successful promoting the property themselves.
The underlying principle, I believe, is that when it becomes common knowledge among tenants that the market is soft, they tend not to want to pay the agents letting fee. Fair enough too, if it is easy to secure accommodation themselves. Two options for landlords are to either find a tenant yourself or offer to pay the agents letting fee. By doing this you are removing a potential barrier to securing a tenant.
It will be interesting to see what happens to the rental market over the next few months. APIA members were quick to predict the downturn and they may have been quick to recognise the upturn as well.
Rents have certainly not kept pace with property price movements over the last few years, and this has made rents relatively more affordable. There is a potential case for rents to start increasing. It starts with why rents have not kept pace with house prices.
As the property market started to take off, many home buyers (especially first home buyers) took action to reduce their expenses and help save a deposit. As rental payments are a large expense item it was natural that this item was targeted for reduction.
Consequently many people looked to reduce their rental payments by either moving back home with parents, moving into smaller units, taking in a border or couples that previously lived by themselves going back into a flatting situation. While not ideal, these actions helped them to reduce expenses and save for a home deposit.
With a downturn in the housing market, it is possible that first home buyers may put off their purchasing decision for a year or two in order to save a larger deposit.
Short term sacrifices to save money on rent is OK, however they may not be so keen on these less desirable accommodation options for a longer period of time. Consequently they may move out of Mum and Dad’s or back to a flat on their own. This is likely to improve demand for rental property and apply some upward pressure on rental prices.
To conclude; if you are using letting agents to secure tenants you may want to consider the state of the market before enlisting their help. A letting agent is always “easier” but will it be quicker?
Times when a letting agent is a good idea
- Lots of tenants, short supply of accommodation (in your market sector)
Times when it might pay to let the property yourself
- Few tenants, oversupply of properties
Current changes in the Residential Tenancy Act Amendment Bill which prohibit tenants being charged a letting fee will upset this balance, but that’s another story.
Markets change all the time and while we may be in a soft rental market right now, it doesn’t mean we always will be.
All the best with your investing.
