Rental income from certain sectors of the residential property market will continue to be reliable, but investors should expect the income levels from these assets to be supressed in the immediate future, a specialist wealth manager has said.
“A and B-grade properties have not been completely immune to increased vacancies with a portion of share-house renters and younger renters, who may have lost their job or whose leases have ended, [changing their living arrangements] in the short term,” Thinktank investment business development manager Lauren Ryan told delegates at the SMSF Trustee Empowerment Day hosted by smsttrusteenews last week.
“We’re also seeing renters of high-end properties having to downsize into a more affordable property.
“However, if you hold an A or B-grade property, then you should feel relatively confident that your property will be tenanted.”
A-grade properties are those usually with a good aspect and are close to shops, schools and transport. B-grade properties are typically those situated in a good suburb, but not where the bulk of buyers would prefer and often may not have parking facilities.
However, Ryan warned the amount of rent these properties can demand will be at lower levels for a slightly longer period of time due to the flow-on effects from other sectors of the residential market.
“The glut of Airbnb and shorter-term rentals [typically B and C-grade properties] into the longer-term rental market right when the lockdown happened and in the months after compressed rents and property investors may have to dampen their [rental income] expectations for a while longer,” she noted.
According to Ryan, the current plight of the residential property market should prompt investors to adhere to a traditional principle relating to this asset class.
“Today the importance of holding cash buffers when investing in property, especially [shorter-term rental properties], has never been truer,” she summed up.