Renting vs. Buying

The Federal Government has announced that the current First Home Owners Boost scheme will continue in its current format until October 1, 2009. This means that those buying existing homes will receive $14,000 and those buying new homes $21,000.
Adjustments to the scheme from October 1, 2009 will see the First Home Owners Boost scheme halved. Which means those buying existing homes will receive $10,500 and those buying new homes $14,000.

As of December 1, 2009 the First Home Owners Boost scheme will cease and the existing $7,000 grant will continue to be available to all first home buyers.

Since the increase of the goverment's first home owners grant there has been many changes in the property market. As property managers we are most interested in how it effects out clients (landlords). Over the past 3 months we have noticed a dramatic change in the top end of the rental market. It seems anything over $300 per week has a higher vacancy rate. In the mean time properties priced between $250 - $280 per week attract multiple applicants.

On the one side we have tenants trying to decide “should I keep renting or should I buy?” While for property managers their focus is on “how do I keep tenants and should rents be reviewed down?” “If so how do property managers convey this reduction in rent to the landlord?”

It’s crunch time on whatever side of the fence you sit. The fluctuation of interest rates, shortage of rental properties and now the global economic uncertainty makes these questions all the more difficult for property managers to answer.

What we’re seeing is the first home buyers sector of the market starting to take control, which will soon have a marked effect across the rental market in all states/territories. This is because when first home buyers leave the rental market to become an owner occupier, their purchase creates a natural turnover of property.

Remember, when interest rates soared between 2002 and 2008 the turnover of stock decreased dramatically, while the cost of mortgage repayments became too great for many first home buyers. Subsequently the rental market became clogged with tenants staying long term in the one place. The reluctance of developers to release new stock to the market and the general State Government impositions saw the production of units decrease. This decrease led to a real fight for supply and demand

This environment, whilst difficult for tenants opened up new opportunities for landlords to capitalise. Investors seized the opportunity to cover the cost of their mortgage repayments and used the desperate plight of many looking to rent a property, by increasing rental rates by as much as 20 per cent. But these times are coming to an end.

Tables start to turn as they say, what goes around comes around, and this is certainly the case for tenants. It is now the tenant who has the chance to seriously consider if renting is the best option for them. Alternatively, they can now take the chance to use part of the Federal Government’s stimulus initiative to enter the property market.

In the early part of 2000 the Federal Government introduced the first home owners grant. This grant gave eligible recipients a contribution of $7,000 towards the purchase of their first property. This initiative saw sales rates increase and the flow on was an increase in available rental properties, producing a reduction in rental rates.

The current financial situation has required the Government to provide even greater levels of assistance. Part of the stimulus package now increases grants to $14,000 for existing properties or $21,000 for new or off-the-plan purchases. The hope is that this offset will reignite the property market. But is this enough?

At the end of the day people have to meet the mortgage repayments and the current financial uncertainty means less confidence in meeting these costs as the new fear for people is loss of employment. With interest rates plummeting over the past 12 months, tenants are in the box seat while, landlords face an unsettling dilemma.

Landlords have to understand that adjustments need to be made to rental rates if they wish to secure tenants (both over the short and long term) and avoid vacancy rates.

The dramatic increase in rental rates over the past few years and now the rapid fall of interest rates has produced an interesting situation. Tenants can now be paying off their own mortgage and not the landlords for almost the same monthly repayment. Buying a home and fulfilling the great Australian dream is now more cost effective then ever.

So what does the future hold?
On both sides of the fence, landlords and tenants need to be realistic. Yes, the current economic landscape is difficult. But it is in these times when flexibility, understanding and a clear mind will deliver results – this is the message that property managers will need to deliver to both tenants and landlords.

First home buyers should only use the grant which is available until July 2009 to enter the market if they feel they have the financial means to do so and if the repayments match or are close to their current rental payments.

Landlords have to understand that times are tough especially for those renting. Interest rates have fallen, and over time so will the rental rates. To get a property let, and secure a long term tenant rents inevitably have to fall.