This is an open letter to our exisiting NextGen tenants but also to all current and near-future tenants in Sydney. I’ve decided to put pen to paper to share with our tenants the latest on the current market but also to share my views on what to expect up ahead and how to prepare!
If you recently searched for a property to rent, attended an open for inspection or applied to rent a property anywhere in the Sydney Metropolitan and Greater Sydney areas, chances are you realised that rents are “going through the roof” and you were competing with multiple other tenants, all eager to rent the very same property. The “favourable tenant conditions” experienced in the Covid years are now a distant memory. Gone are the moratoriums that protected Covid impacted tenants and gone are the multiple vacant properties to choose from. Sydney has officially entered the new phase of the rental market, one that sees very few available properties to choose from and rents sky-rocketing.
There are several factors all coming together in a “perfect storm” situation to make it a very challenging market for tenants. Undersupply caused by the re-opening of the boarders and the slow down of the construction industry are just two of those. Inflation and the 8 (and soon to be 9 and probably 10) consecutive interest rate rises are others. For most investors in Sydney, the interest rate increases meant an increase in their weekly mortgage repayment of 100’s of dollars and this is in addition to ever increasing costs for repairs and maintenance. These added expenses and a desperate tenant market, means that open for inspections these days are attended by multiple parties, several applications are submitted even before the first open has taken place (and often for above the advertised price), properties are almost always being rented after the first open and rents are up by $100 or $150 a week more to what they were only advertised for a given property only a year ago!
And whilst the news aren’t great for tenants already, I would go as far as to say that the news could be even harder ahead! None of the conditions described above look like changing any time soon. The rental market – even with increasing rents – is already challenging, enough to discourage large levels of real estate investment in Sydney – similar to those seen for example in QLD! Because of that, property investors have lost interest in the Sydney market and either wait on the sidelines for more favourable conditions or look to more affordable states to purchase. The numbers in Sydney justifying some a major outlay of money are simply not there. Added to this are the constant threats of removing negative gearing, the ever-tightening lending criteria and coupled with the economic uncertainty faced by the global economy and a retracting construction industry, one can assume that a more tightening rental market lies ahead unless something changes!
So what can tenants do today to give themselves a better chance securing their next property?
Here are 7 tips in no particular order…
1. Make everything you remain in your current property for as long as you can. The best option for any tenant right now in Sydney, is to stay in their current property for as long as they can. If they decide to leave or are forced to vacate, chances are an equivalent property will be a lot more expensive, let alone moving costs and new neighbours/new environment amongst other considerations.
2. Make sure your tenant ledger is clean and shows you always pay on time. Tenant Ledgers don’t lie. Think of them as your CV for a new job except, unlike a CV, Tenant Ledgers cannot be fiddled with! When a property manager considers an application for their rental property, the first thing they will want to look at, is your current Tenant Ledger. Tenant ledgers show every single payment you ever made and if it was made on time! If your tenant ledger shows that you are always behind on your rent, your application is as good as dead in the current market!
3. Look after your property, make sure to not break any rules and be nice/responsive/accommodating to your property manager. The second thing a property manager will do when assessing an application, is speak to your current property manager. Property managers like tenants that are easy going, look after the property, don’t breach the terms of their agreement, are flexible, not too demanding and are accommodating when asked to provide access for routine inspection and smoke alarm testing compliances. If you approach your relationship with your property manager with the above in mind, then your current property manager will provide a positive reference for you. If they don’t, your chances of securing your new property are compromised!
4. Build up your buffers and cash reserves. Rents will continue to go up. Unless there is an event similar to Covid, the only way I see rents trending in the foreseeable future, is up! My suggestion to current tenants is to brace themselves and to make sure to build their cash reserves for sizeable annual rent increases. Prior to Covid, a “reasonable” rent increase was in the vicinity of $10 or $20 a week for good tenants, just to get the rent ticking over. Most of the time, property managers forgot to even review the rent, but in the current environment even if they do forget, rest assured the landlords will make sure to remind them! At the time of writing this letter, the minimum new norm of rent increases in Sydney is $50 a week BUT rent increases of over $100 a week are becoming more and more frequent! In an environment where the average loan of $500,000 has had repayments increase by $250 a week, isn’t $50 or $100 a week “fair and reasonable”???
5. Lower your expectations – consider where you will rent next. Maybe the time has come to look a little further out or perhaps a not-so-new or even smaller property. If you do your research, properties a couple of suburbs out and/or older/smaller properties may be a more affordable option. When the going gets tough in the rental market, lowing one’s expectations on location and property type may be the only way forward!
6. If you MUST vacate, start looking early or you may run out of time. Don’t leave it to last minute to secure your next property. I know of tenants, who’s landlords gave them 90 days no grounds termination or told them they are selling their property, but are leaving it to the last month to start the search for the next one. My advice to tenants needing to vacate, is to look early and apply for as many properties as they can, or they may run out of time to secure their new property.
7. Don’t park illegally when you attend an Open For Inspection! OK, this is not in the same league as the previous tips, but is one of those bug bears of ours, so I will throw it on this as well. Parking in Sydney is terrible. This is not a new problem. We often observe prospective tenants arrive late at our open for inspections and proceed to park their car illegally! It happens more often than you think! We’ve seen prospective tenants park on curbs, common property, grass, double park and leave their car on the the neighbour’s driveway! Without stating the obvious, we rarely accept an application from someone who’s first impression is to break the law before they even become our tenants! Arrive early and park legally please! FIRST IMPRESSIONS COUNT!
The points I have listed above, are meant to help tenants and bring some visibility on the current market. I discuss these points and give these tips to our tenants every day as I am trying to prepare them for the future either with our agency or another. My advice to them is that this isn’t the time to breach the terms of their tenancy, to be too demanding, to fall behind on their rent, BUT most importantly to NOT BE FINANCIALLY PREPARED for what is coming.
Inflation and rents will only continue to rise in the foreseeable future. It is the simple mathematics of supply and demand and it is what is coming because of where ours and the global economies are heading to. It is also what landlords will have to resort to, not because they are trying to extract some more money from their tenants as the media will have you believe, but because increasing rents may be the only way to save their properties (your home) from being sold or re-possessed by the bank!
Be strong, brace and prepare for a challenging future ahead!
Who we are:
NextGen Property Mgmt (www.nextgenpm.com.au) is a boutique Real Estate licensed agency that specialises in property management. NextGen Property Mgmt does NOT has a sales team. Our area of focus is residential property and we operate in Sydney Inner West, Eastern Suburbs, St George and South West Sydney. NextGen was created from its infancy to cater for investors as it was founded by investors who quickly realised that in a highly regulated industry like Real Estate – competence, expertise, care and service by property managers varies greatly.
As an investor, you need to have trust for and feel valued by your property manager. You need to know that your property and tenants are being looked after with minimal disruption, and you are getting maximum return on your investment. At NextGen we understand that, because we are investors living busy lives ourselves. Our promise to you, is that you will no longer have to worry about your most valued asset because we will make sure to take care of it as if it is our own. If you want to learn more about us just click here to organise a time for a chat. Or call us on (02) 9199 9651. We would love to hear from you and to share our story.