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Wednesday, 1 November 2006

Real Estate: Rental Squeeze predicted

The Australian property research company BIS Shrapnel has predicted a 5 per cent drop to 142,500 new homes in 2006-07 following on from a 4 per cent decline in 2005-06. This is expected to lead to a surge in rents over the next five years because of a housing shortage across the country - rents in Sydney are forecast to rise 5 per cent this year and by as much as 40 per cent in the next five years. Higher interest rates and higher prices have impacted affordability and demand, and this has resulted in a decrease in new housing starts (to below the level of underlying demand). Eventually the increasing rent returns will coax investors back into the market and stimulate construction - and the next 'boom' will start.

Our rental property in Sydney has been vacant for a couple of months since the last tenant moved out, so obviously a vacancy rate of 2.5% overall doesn't necessarily affect individual properties. However, an overall increase in rents should make our property easier to rent out, reduce out personal vacancy rate, and allow us to increase the rent to keep pace with the overall rent increase. Currently the rent on our investment property is set at $410 per week. An increase of 40% over the next 5 years would provide us with an additional $8,500 per annum income, which will help us service our $68,600 pa mortgage payments. With the wife on maternity leave, and planning to work part-time until our youngest starts school, any decrease in vacancy rate and increased rent for our rental property will be helpful. With no tenant and only one income we have had to start making a $6,000 a month "redraw" (out of the extra payments we had made off our home loan) in order to meet the payments each month.

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