Quality beats quantity when it comes to the rental market in 2023. Find out how to ensure your rent roll remains financially buoyant.
It has certainly been an interesting few years for the Australian rental market.
During the pandemic, investors pulled out of the market as they lost tenants and vacancy rates hit record highs. Then, as quickly as the pendulum had swung in one direction, it made its way back, with renters flooding into the market, vacancies plummeting and prices being pushed skywards.
Over the next year, rental stock is expected to decrease for a couple of reasons.
Why are rental properties scarce in Victoria and other parts of Australia?
As recently reported by Domain, the Melbourne rental vacancy rate is at 1.4%, close to record lows and well below its peak of 5.6% in December 2020.
The low vacancy rate is for a few reasons. Firstly, flattening prices are allowing first home buyers who were able to save money during the pandemic to get into the market. This means properties for sale are being snapped up by owner-occupiers rather than investors.
The other reason is interest rates. Eight consecutive jumps last year added hundreds of dollars to a standard mortgage. Many investors who had pushed themselves to the limit financially and were on variable rates were forced to make the decision to sell.
The situation is not likely to change. Mortgage Professional recently described a ‘mortgage cliff’, caused by two in five fixed-rate borrowers seeing their mortgage commitments jump by 40% because the loan rates they fixed in 2021 have now expired. Many of these may be investors who take their properties off the rental market and sell them.
The new rent roll equation
The offset of dropping vacancy rates is higher rent. Domain also shared how prices in Melbourne have increased by an average of 20% over the last twelve months, reaching a high of $450 for apartments and $480 for houses.
As a property management business, if you haven’t reviewed expiring contracts to reset prices in accordance with current benchmarks, now is the time to reach out to your clients and do so. Being able to update pricing will help to offset the cost of any homes you lose from your rent roll because they are sold.
The landscape is becoming about quality over quantity. If you can attract landlords who have several properties in their portfolio, your revenue per client will be higher. You may also revise your strategy to focus on the premium end of the market as a way to boost revenue.
Your existing clients are now more important than ever, for so many reasons. For one thing, if a client does decide to sell their investment property, you may have someone in your database who is able to invest and expand their portfolio. This delivers a win/win because you can help facilitate a smoother transaction for both parties while keeping the property on your books.
With investment properties being scarce, your existing clients should also be your top priority. Looking after them and providing the best customer service means they will stick with your business and refer their friends to you. With so much competition out there, your property management firm needs to stand out to maintain a healthy rent roll.
It’s all also about customer care. You may also find now is the time to explore expanding or building your offshore team. Having lower cost workers to support your existing property managers can allow them to oversee larger sections of your rent roll and provide better, more personal service without the stress. An overseas team can also take care of things like social media posting, booking and managing appointments, sending reminders, handling enquiries and processing applications/payments, which will improve efficiency and give you breathing room as a rent roll owner during a rental property shortage.
During a change in the economy, it’s important to stay focused on marketing and quality service. These will help you maintain your rent roll numbers and value.