¢ April 2009 – Increased to 1.5%

According to the Real Estate Institute of NSW (REI) the vacancy rate for April had increased to 1.5% which it the highest it has been for 20 months.

The figures issued by the REI should be taken with a grain of salt as they are flawed and inaccurate as it relies on the voluntary information provided by its members.

Many of the stories you read about regarding aggravated tenants is more often a case of scrupulous agents and unethical practices.   

Yes I agree that we are experiencing a weaker market than 12 months ago. Given the events since September 2008 the rental market is fairing very well and net yields are the highest they have been in years with rents high, interest low and generally static property prices.  

The rental boom of the past 3 years is not a once off phenomenon. I can clearly remember back in the 90’s when things were also very tough for renters. There were 20 to 30 groups going through properties each weekend in the eastern suburbs and inner city. I can also remember at the end of the 90’s and early 2000’s when plasma TV’s, holidays and 4 weeks free rent were being offered to get properties tenanted.

The cause remains the same, greater demand than supply. I expect these conditions to continue until such time as supply improves and tenant psychology changes which we are starting to see. Two and 3 bedroom properties which once had a spare room to be used as a study etc are now being rented out to ease the rental burden. This will allow for the market to meet the price increases as well as provide for increased occupancy levels.

A characteristic which was not as prominent in the pervious rental booms was the effect of overseas students mainly from Asia and India. Unlike locals who are able to move back home or share with friends, overseas students are not able to do this. So as supply of new rental properties is at a low level, overseas students continue to place large demand on the rental market. We are seeing Indian students with working visas paying large rents because they are able to have 4 to 6 people in 2 bedroom apartments that can easily pay $100 to $150 each per week. This is artificially inflating rentals across Sydney’s inner west 

A majour factor placing pressure on the outer suburbs is the upper management who have lost their jobs down sizing to more affordable areas near quality schools. Job uncertainty is deterring renting families from buying homes and choosing to reduce their debt levels and increase their savings which is an expected characteristic in this type of market.

First home buyers are not a major cause of the increased vacancies even though they are reducing the supply of ex rental properties because this is offset against them actually leaving the rental market and freeing up their rental property.

The biggest impact is the executive rental market which has been greatly effected by the economic down turn. Not only are these properties vacant for longer, but they are also being offered at dramatically reduced rents to attract tenants.

Were do I see the market going? We’ll I feel that things will remain strong for lower to medium grade properties with the higher grade properties experiencing longer vacancies and lower rents until the economy recovers and companies renew their generous ex-pat rent subsidies and middle to upper management jobs return.