Property Investors – Will residential rental returns fall?

Are landlords competing for tenants?

At the moment, I’m seeing more and more property investors in the property market buying residential investment properties. On the other hand, not so many first home buyers buying their first home, especially compared to previous years. Without first home benefits such as the grant or stamp duty exemptions or concessions, many first home buyers are literally being squeezed out of the residential property market by investors and, in many cases, forced to continue renting.

But it might not be all bad news for first home buyers who have to continue renting. As investors flood into the residential property market, a possible consequence is an increased supply of rental properties. Basic economics suggests that a greater supply of rental properties, especially if it outstrips the demand, means greater competition between landlords, more choice for tenants, and maybe lower rents as well.

Of course this simple analysis of the residential property market isn’t necessarily correct. I’m sure if you’re really interested you could get professional advice on the subject which would take into account a whole list of variables and probabilities as well. Ultimately, there may be no obvious or wide spread change in the rental property market, but then who knows? Even if you did consult a professional, only time will really tell.

What’s important though is that I think the economic argument is reasonable. Even if it’s not probable, it’s still possible. There’s a real danger in thinking otherwise, or that it can’t happen – ie, that rental returns will always rise and will never fall. Now if it makes sense to you too as it does to me, then really it’s just a matter of being vigilant, keeping a level head and keeping informed.

In the past, I’ve heard about lines of people outside rental properties that are open for inspection and potential tenants attempting to outbid each other with offers of higher rent just to secure a home. I’m sure that must have been a good time for landlords.¬†I don’t know whether that’s still continuing, but these days I’m hearing about the same lines of people outside properties for sale during open homes. I also hear of buyers attempting to outbid each other by offering above asking prices (sometimes even before properties are listed). If that’s the way the property market is going, and many of these buyers are property investors, the “For Sale” signs will soon be replaced by “For Rent” signs and then we’ll see what happens.

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Ern Phang

Ern Phang
Director - Property Lawyer

This website is supported by Phang Legal, a law firm in Parramatta providing fixed fee conveyancing services across Sydney and New South Wales. Ern Phang is the solicitor director of Phang Legal.