For property investors, the news just keeps getting better and better, especially if you own real estate in Sydney and Melbourne.
Before we explain why the reopening of Australia’s economy will benefit property investors, let’s explain why the market is already so favourable.
As Domain recently reported, the national vacancy rate (i.e. the share of untenanted rental properties) fell to just 1.1% in February, which is the lowest reading since Domain began tracking this statistic in 2017. In Sydney, the vacancy rate is higher, at 1.7%, but that’s down from 2.6% the year before.
The lower the vacancy rate, the harder it is for tenants to find somewhere to live. That, in turn, makes it easier for landlords to fill their property, which not only means less downtime but also gives them scope to raise rents.
To get a sense of how low vacancy rates are right now:
So, as the Domain table shows, over the past 12 months:
In other words, landlords hold the balance of power in most of the country.
Now that the international border has reopened, demand for the limited amount of rental accommodation will only increase.
That’s because immigrants and students will compete for long-term rental accommodation, while some tourists will compete for serviced apartments and Airbnb homes.
The biggest impact is likely to be felt in Sydney and Melbourne because:
Foreign arrivals often favour inner-city accommodation, so the reopening of the international border is particularly good news for investors who own inner-city properties.
As the latest data from SQM Research shows, inner-city vacancy rates exploded in March 2020 when the border was shut and Australia went into lockdown, although they’ve since recovered.
In Sydney CBD, vacancy rates rose from 5.3% in March 2020 to 14.8% in May 2020, but have since fallen to 4.0% as of January 2022.
In Melbourne City, vacancy rates rose from 3.0% in March 2020 to 9.4% in October 2020, but have since fallen to 3.1% as of January 2022.
According to SQM Research, between March 2020 and March 2022, average weekly asking rents fell in both inner-city markets:
By way of comparison, in Australia as a whole, average weekly asking rents increased 16.9% during that two-year period, from $414 to $484.
This highlights the earlier point about vacancy rates. When vacancy rates are falling and tenants find it harder to secure accommodation, rents tend to rise. Conversely, when vacancy rates are rising and tenants have more options, rents tend to fall.
Most successful property investors take a long-term approach: they buy quality properties in quality locations and then hold them over decades, through a variety of market cycles.
As a result, it’s generally unwise to make property investment decisions based on short-term news.
That said, if you were already planning to enter the market, conditions are likely to be favourable at least in the short-term, because vacancy rates are likely to remain low for the foreseeable future. You can then use the rental income to pay down your mortgage.
Thinking about buying an investment property? Shore Financial can help. To discuss your home loan options and model different financial scenarios, call us on 1300 416 700, email us on firstname.lastname@example.org or fill in this online form.
To discuss your options, you can call us on 1300 416 700, email us on email@example.com or fill in this online form.