Property News, Insights & Education

    The Secret Weapon of Professional Investors: Vacancy Rates Revealed

    Forget capital growth. 

     

    Forget rental yields. 

     

    There’s one number which professional investors like us follow even more closely. 

     

    Vacancy rates

     

    This unusual and often overlooked statistic is one of our favourites because it reveals what’s really going on under the surface.

     

    In fact, it can tell us a mini-boom is coming, and where the supply and demand equation is out of balance the most. 

     

    This is like an ‘early warning’ signal for us to invest, and it’s why we follow it so closely. 

     

    Because when a market booms, here’s what we see. 

     

    First come low vacancy rates … second comes higher rental yields … and finally we get capital growth. 

     

    See why we follow vacancy rates more than the other two numbers? 

     

    They give us advanced warning that a boom is imminent.

     

    And what are vacancy rates telling us?

     

    Right now vacancy rates are just 1.1%.

     

    And in non-investing terms this is tight as a drum. 

     

    By the way, in case you’re not totally sure what vacancy rates actually measure, it’s simply this. 

     

    The number of rental properties currently advertised for rent … divided by the number of rental properties in total. 

     

    And as of today for every 1,000 rental properties in a typical area … just 11 are available for rent. 

     

    Yikes! Just 11 out of 1,000. 

     

    It’s tough being a renter and I genuinely feel sorry for them. 

     

    But for investors it’s great news because when there’s not enough places to rent, rents keep going up. And when rents go up, house prices follow. 

     

    Let me give you a few numbers so you can get a feel for what’s really going on.

     

    #1. Vacancy rates are currently 1.1%

     

    #2. This time last year vacancy rates were 1.4% which means it’s getting even tighter

     

    #3. In September (the latest set of figures) just 90,153 properties were listed for rent which is 34.5% below the previous 5 year average

     

    #4. There haven’t been this few rental properties listed for 11 years

     

    #5. Rents ROSE across the nation 8.3% in the last 12 months. No coincidence that rents soared as vacancy rates plummeted

     

    #6. Rents have risen every month now for 38 months in a row. 

     

    You can see how fast rents are racing up.

     

    monthly-rent-graph

    vacancy-rent

    rent-changes

     

    And on and on. 

     

    I could give you stat after stat and graph after graph showing you how tight the rental market is. 

    But I won’t because everything tells us that rents will continue to soar, and there’s no end in sight. 

     

    Louis Christopher, Managing Director of SQM Research said:

     

    “September was the return to very tight rental conditions for Australia’s regional townships. It would suggest the population overflow is making many look once more to areas outside the capital cities in order to find shelter. Going forward, the market may find some seasonal relief after October, however it is unlikely rental growth will pause.”

     

    In other words, it’s so tight that people are now going outside capital cities, and rents are surging in regional areas as a result. 

     

    And what’s driving it?

     

    On the demand side is that our borders are open again for immigrants to come here. And they’re now in the mix fighting for houses too. 

     

    And on the supply side is that house construction is still miles behind where it needs to be, and showing no signs of picking up the pace. 

     

    It’s no wonder home loans for investors rose by 6.3% over the last year. They smell blood in the water and they’re ready to strike. 

     

    And it’s no wonder we use vacancy rates as one of our favourite indicators that a market boom is coming.