Interest rates and the cost of living are going up and the property market is starting to flatten. Because of this, PM departments will become every agency’s lifeline.
The word that’s on everyone’s mind in 2023 is recession.
After unprecedented inflation, property price jumps and a frustrating lack of quality people to employ, economists are forecasting the pendulum will swing. A string of interest rate increases and 2022’s ‘loud layoffs’ amongst the biggest tech players were the early warning signs of a downturn.
The real estate market is unlikely to be immune, especially because of rising interest rates limiting what people can spend and afford.
What will happen to property in 2023?
The end of 2020 and most of 2021 saw rental availability drop and prices rise. In 2022, there was a correction; you probably saw CoreLogic’s reports of the Daily Home Value Index (HVI) hitting a record decline of -8.40% in January 2023 after peaking in May 2022.
Of course, every market is unique but the overall trend is likely to see house prices stagnate and fall. This will come as a result of affordability dropping and families being forced to sell due to mortgage stress, which will see more stock added to the market.
Investors who stretched themselves to the limit to buy are also likely to make the decision to offload their properties and it’s likely these homes will be transferred to the hands of first home buyers, which will put more renters into the market.
How your property management department can turn up for the downturn
Property management is often described as the ‘bread and butter’ of the real estate industry.
In 2023, the race will be on to secure available properties and ensure steady rent roll income. The agencies with the best reputations will be able to avoid the stress of losing properties under management because they have been sold.
For agencies in a good financial position, 2023 is not a bad time to explore acquiring a rent roll. This will help deliver the ‘bread and butter’ income, while saving the need for a large business development team.
Outside of acquiring more properties for lease, PM departments must focus on delivering the best possible experience for renters and property owners. This can be achieved through:
integration of efficiency-driving technology
having clear systems for all team members to follow
defining the roles and responsibilities of property managers in your team so they don’t find themselves overwhelmed
focusing on recruitment so you can attract the best staff
automating communication to ease workloads and improve customer service
having agreements with reliable contractors and tradespeople so they make your jobs a priority.
The good news is rental vacancies are below 1.5% and yield is relatively high in many suburbs. For example, the latest Melbourne figures report there has been a 20% increase in the cost of rent over the last twelve months, to an average of $480 per week for a house and $450 per week for an apartment (as of December 2022). If you’re able to focus on quality over quantity, your business may be able to use this to its advantage.
Your agency can also work closely with rental property owners who do have the capacity to expand their portfolio. In a slower market, those who can afford to make a move can take advantage of opportunities others are forced to say no to.
The other option you may wish to explore as an agency is short term letting. During the pandemic, many property owners switched from hosting Airbnbs to leasing to renters but with people free to travel again, some are returning to the short term model. When managed professionally, these home-hotels can deliver good returns for owners and real estate agencies.
2023: what’s in store?
The Reserve Bank of Australia has indicated interest rates will continue to rise until inflation is brought under control. This means Australian home owners are likely to continue to feel the pinch financially, especially as fixed rate mortgages begin to expire in April and May.
Property management businesses which provide a premium level of service will continue to thrive and be sought-after. However, it’s a good time to review and reduce expenses if you can, and to ensure no accounts are overdue so your business isn’t chasing its tail financially.