Rental providers are being urged to tap into the latest property data and seek expert advice when setting the price of rents.

Victoria’s revamped Residential Tenancies Act, which comes into force in March, has ushered in more onerous requirements on property owners when setting and increasing rents.

Nelson Alexander’s Head of Property Management, Martin Sizer, says getting the rent right is now a far more critical issue for property investors and rental providers.

That’s because under the changed Residential Tenancies Act  when Rental Providers advertise a property for rent at a certain price they cannot increase the asking rent if the property meets unexpectedly high demand from Renters.

Similarly, the new legislation outlaws “rental bidding” where prospective Renters offer a higher rent and the increased rent offer is then shared with other prospective Renters to secure a higher rent than the asking price. Nor can the rent be raised more than once a year. Previously, some Rental Providers increased rents on a six-monthly basis.

“If we advertise a property at a certain price, we can’t promote rent offers at a higher price,” Mr Sizer says.

“That is relatively new with the Residential Tenancies Act legislation – you can’t have rental bidding.”

The legislative changes have upped the ante for Rental Providers to get the price right when they offer a rental to the market. 

In this new environment, property owners that opt for a DIY approach, rather than using a professional property manager to maximise returns on their investment, risk either under-pricing or overpricing the rent.

“Rental Providers need to know that we have all the tools, through Nelson Alexander’s databases and in-house systems, to get the price right,” Mr Sizer notes. 

“Getting the rent price right is more important than ever because if you go in too low you are going to have huge demand. Arguably, that’s a good problem to have. But Rental Providers can kick themselves and say, ‘I should have asked for an extra $20 or $30 a week.’ 

“And, of course, those Rental Providers who under-price a unit or a house will have to wait one year to put up the rent.”

New data shows that rental vacancy rates are at a record low in Sydney, Melbourne, Brisbane and Perth.

The return of international students has also increased rental demand, exacerbating the existing shortage of homes.

In February, rental vacancy rates hit record lows of 0.8 per cent in Melbourne, 0.9 per cent in Sydney and 0.6 per cent in Brisbane in February, data from the Domain Group shows.

The number of empty rental properties across the nation was down 33 per cent year-on-year. Melbourne had the largest drop in vacancies, down 64 per cent annually. The city’s current 0.8 per cent vacancy rate has sharply tightened from a 2.3 per cent vacancy rate in February 2022. 

Domain’s Chief of Research and Economics Dr Nicola Powell says the diminished supply of rental properties was a result of reduced new housing supply and investment activity. In addition, she believes the supply of rentals has also been hit by the rise of short-term letting and a drop in household sizes as people sought out more space during the pandemic.

The shortage of homes in Melbourne has been recently exacerbated by increased demand from returning international students, migrants and tourists seeking short-term stays.

Mr Sizer says there has been a spike in overseas interest in Nelson Alexander’s rental listings, driven by Chinese students who were informed in January that the Chinese Government would no longer honour online degrees. In order to have their degrees accepted, Chinese students are required to physically attend on-campus lectures.

“With the international students coming back to Melbourne, we are experiencing huge demand,” Mr Sizer says. “But we just don’t have the stock, so it’s becoming a Rental Providers market.”

But Mr Sizer cautions that very high demand and an undersupply of rental homes is not the norm for Melbourne’s market during the early months of the year. Rather, there is typically an over-supply of properties on offer each January and February, which allows some Renters to pick and choose.

“Normally, there is an enormous supply at the start of the year. But that is not happening in 2023 – instead, we have had huge demand,” he says.

“It is going to be harder for prospective Renters to find their ideal rental property.”

From March onwards, the pool of Renters typically contracts, making the competitive pricing of properties all-important.

The most acute shortage of rental properties centres on so-called “affordable” properties, below around $500 per week. When it comes to more expensive rentals, especially those that cost above $900 a week, the Renter pool is often thinner. Renters in this higher price band are also likely to look very closely at comparable properties and their prices.

Nelson Alexander’s property management team can tap into extensive suburb-by-suburb data on rental pricing. The team monitors the going rate for all rentals in particular areas across real estate agents active in the market.

This allows the company to greatly assist Rental Providers to set the correct rent before a flat or house is promoted to Renters. Nelson Alexander can also harness comparable price data to make an informed case to prospective Renters that the asking price for a property reflects the prevailing market and is fair and reasonable. Such advocacy helps Rental Providers achieve their wished-for return on an investment property.

And, of course, property management clients receive reminders of when a rent increase is due from Nelson Alexander, with evidence-based suggestions of what that increase should be.

Getting the rent price right is clearly becoming a more complex issue. 

As Victoria’s Residential Tenancies Act shakes up the market, Rental Providers face other legal and compliance changes. These include requirements to ensure rentals meet basic “minimum standards” by having functioning stoves, heating, deadlocks and safety measures.

Under the changes, no-reason evictions have been scrapped, bonds are capped at four weeks’ rent and Renters are allowed to make minor modifications to a building. For Rental Providers, the best way to navigate their way through this changed landscape is to engage a property manager who’s fully up-to-speed with the demand trends and the legal requirements.

To discuss your property management needs in greater detail, please contact any Nelson Alexander office.