This question will becoming more and more important for apartment investors and renters over the next 12 months.
The pros and cons for both sides of the deal depend on their own situation and the market.
Fixed term lease or monthly?
For an apartment owner who is thinking about selling in the next 12 months, a periodic lease is best. Primarily because it enables them to achieve vacant possession on sale.
Most apartment renters are 25-40 yrs old and love the flexibility of a periodic lease. It allows them to move out with 28 days’ notice if they need to. After all, who know what is around the corner in life. Work and love is full of twists and turns. Flexibility is key.
Yet all the apartment market researchers are in furious agreement, that over the next 2 to 3 years, things are about to change.
Apartment market rents about to rise.
The apartment rental market is going to rise sharply over the next few years. Renters will have to trade off the risk of an untimely rent increase, against the flexibility of their accommodation. Whilst rent can only be increased once a year (in Victoria), after that time, an owner can apply the increase whenever they like (with 60 days’ notice) . We know some renters prefer a fixed term lease, which locks in the rent and they can budget with confidence.
Another good reason for renters to lock into a fixed term lease, is rising interest rates. Yesterday’s 5th successive rise in the cash rate to 2.35%, may encourage more apartment investment owners to sell. This means renters of those apartments will almost certainly be asked to move out by either the seller or the buyer.
For renters, the issue is not only about how much their rent will rise, it is also about finding a place to live. In tight rental markets, when people can’t afford a particular location or type of property, they get squeezed out.
I suspect we will start seeing renters request 2 or even 3 year lease terms to lock in their rent for that time. In a rising rental market however, most owners will be reluctant to agree to this.