With so much bad news in the media lately, I understand why many property investors are concerned.

One commentator says we are in for the "mother of all property booms" and another says we are in for a significant drop in property values.

The Reserve Bank says our economy is growing too fast and we need to slow it down and some commentators are suggesting we are going into recession.

Regular readers would know I have suggested that you should be "alert but not alarmed" by all that is going on. However more and more of the research I am reading from the property researchers I respect suggest a strong upside ahead for property.

A recently released detailed report from PMI Mortgage Insurance and BIS Shrapnel explains why rents are going to explode over the next couple of years and how that is going to impact positively on property values.

They explained that in the financial year 2003-2004, Australia built 174,000 new dwellings. Since then the construction of new dwellings has dropped to around 157,000, hampered by rising prices and declines in affordability due to rising interest rates.

Yet at the same time our migration and our population growth reached record highs, causing an increased demand for dwelling accommodation.

Our national rental markets have also tightened considerably, with vacancy rates falling to historical lows and significant rental growth emerging in all capital cities.

We currently have a significant undersupply of properties, and this is likely to get worse as in all states, with the exception of South Australia and Tasmania, we are building fewer dwellings than required by underlying demand.

It is often said that a balanced rental market has a vacancy rate of 3%. What this means is it allows rental growth to move in line with inflation and the rise in price of other items. But like everything else, rentals are affected by supply and demand, and when there's an increase demand and a diminishing supply it's likely that rents are going to rise significantly.

A number of researchers are suggesting that capital city rents could rise by 50% over the next few years.

The big questions are - can people afford higher rentals and what will this do to property values?

Both the BIS Shrapnel report and another one I recently read from Michael Matusik suggest that the average renter can afford higher rental payments. They suggest that while many people rent because they are unable to afford to own their own home, there are nevertheless groups of people who rent by choice and who have significant disposable income.

Looking back at how rentals have preformed over most of this decade, initially rents have only gone up at about the same rate as inflation. In the meantime property values have risen considerably, meaning that investors have received lower yields.

In the last year or so rents have started to increased significantly and throughout most of 2008 rents have gone up 2 or 3 times the average increase for the previous few years.

Back to the question I asked before "can the renters still afford to pay more?"

Recent figures from the Australian Bureau of Statistics suggested that 42% of tenants had one spare bedroom, 19% had 2 spare bedrooms and about 3.6% have 3 spare bedrooms.

This doesn't surprise me. Lots of people have a spare room that they use as a study or a TV room. What this shows is that renters have the capacity to either take on boarders to help share the rent or they could move into smaller accommodation if they really had to.

Looking at the 2001 census, and comparing average rent as a percentage of average income, tenants paid a higher proportion of their income on rents in 2001 than they do now.

In 2001 rents were in the order of 25% - 27% of the average income. Currently rents account for 21% - 23% of the typical tenant's salary. This suggests that rental affordability is not as big an issue as some would make out.

Currently rents are more affordable than in 2001 suggesting that, moving forward over the next couple of years, there is scope for rental growth above income growth. And considering the tightness of our vacancy rates, this is very likely to happen.

Given the existing economic circumstances and level of interest rates, it is unlikely that new dwelling construction will change in the short term. This means that vacancy rates will only keep falling and rents will rise strongly for the next 2 to 3 years.

I realise I am throwing lots of numbers at you, but I will be explaining all this in more detail, plus the true impact of the huge rental growth we are going to achieve, at my upcoming Understand What's Really Happening in our Property Markets" seminars.  Click here for more details and to find out when Ed Chan and I will be in your state in August and September.

The Impact on Prices

Over the last few years mortgage affordability has decreased. In other words owning your own house was more affordable in 2001 than it is currently.

Moving forward, however, it is likely that continued strong rental growth will eventually make renting a less attractive option and more and more people will consider buying houses. There is nothing new about this. It is just part of the normal property cycle.

At the same time the dual impact of falling interest rates and rising wages will improve mortgage affordability and so the cycle moves on.

Also with increasing yields and rising property values, property investors will return to the market, further pushing up prices.

As a property investor you must remember that you receive your returns through;

1.Capital growth,

2.Forced appreciation when you undertake renovations or re-development,

3.Rental returns and

4.Tax benefits.

We are moving into the next stage of the property cycle and the strategy many property investors used over the last few years will not serve them well in the next few years. In fact it may see them going backwards.

Ed Chan and I will present our research and our strategies for protecting your assets and making successful property investments in this new climate at our Understand What's Really Happening in our Property Markets" seminars.

Click here for more details and to find out when Ed Chan and I will be in your state. It's the last time we will be getting together in 2008 to conduct our seminars – so please book your places now by clicking here.

The rules are different now. As a property investor you need to ask yourself 3 questions:

1.      Which way are the property markets heading?

2.      Which way are you heading?

3.      Are they both in the same direction?

In their only round of national public seminars until 2009, property expert Michael Yardney and tax expert Ed Chan will help you understand what is really happening in our property markets.

>>> Reserve your place now and receive 3 free bonuses worth over $100. <<<
>>> Please click here for full details <<<

Come along to this series of seminars in August and September in Melbourne, Sydney, Brisbane, Perth, Adelaide and Canberra and hear Michael and Ed give you straight forward, no nonsense, practical steps and honest answers to improve your property performance this year and into the future. 

Click here now for full details.

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