From time to time our property managers are asked “my tenant has been paying the same rent for a while shall I increase the rent”? We understand that the costs of owning residential property have increased and you would like your rent to increase with those costs or at least in line with CPI.
Firstly it’s important to note, like any market, prices change over time. Those change in prices can be both up and down. Ultimately the strength of the rental market is determined by the supply of vacant properties.
A vacancy rate is defined, as the percentage of all available rental properties, that are vacant or unoccupied at a period of time. According to REI NSW, the vacancy rate in Sydney as at June 2018 is 2.7% and this is the highest it’s been for over 5 years. Inner Sydney has a vacancy rate of 2.8% and this is the highest it’s been since August 2005. The supply of available rentals has continued to increase on the back of the recent construction boom.
Your costs are likely to have increased and you may be relying on the income, however when you assess the rental your tenant is currently paying, you need to compare it directly with the strength of the current rental market. It’s a good idea to review your rent from time to time and recommend taking the following factors into consideration.
Factors to consider when assessing to increase the rent:
- What is the tenant like from a perspective of paying rent/ looking after the property/ requests for repairs etc
- How long has the tenant been in the property
- When was the last rent increase
- Current supply of vacant/available properties in the suburb and surrounding suburbs. How do these properties compare to your property
- Condition of your property
- What would be the cost of the tenant to move / relocate
- General state of the economy / unemployment rates
- Can you afford to have the property vacant / do you have surplus funds to pay any mortgage, if the tenant decides to move out
- Timing, when is an ideal time to send a rent increase notice
- Your goals
If you have identified that your rent is below market or you feel that it is appropriate to increase the rent, then do so.
To increase the rent for a residential property in NSW, you must provide at least 60 days written notice to the tenant. However you can’t increase the rent if the lease has not expired, unless the rent increase has been agreed and included in that lease. If the tenant feels that the rent is excessive, then they can apply to NCAT (which is the governing body that handles all tenancy related matters) to have the rent reviewed.
Some property investors even after reviewing the rent, just choose to leave the rental as the current rent because they have good tenants that pay rent on time, care for the property and are don’t request a lot of repairs. These investors aim to hold tenants for the longer term, have regular income coming in and maintain a low vacancy with the property or limit the costs associated with finding tenants.
Currently our office is experiencing that about 50% of tenants, that are issued with rent increase notices are deciding to move.
So at the moment the rental market is in favour of tenants, it is more challenging finding new tenants and properties remain vacant longer. (Avoid the stress of having your investment property vacant for too long) According to rent.com.au the average days on market for rental properties in Sydney during May was 23 days for units and 25 days for houses.
The good news is that our boutique and responsive office is generally leasing properties in less time than the current average days on market.