Australia market update
Over recent years we have seen a sharp decline in vacancy rates in all major capital cities, according to the ANZ Property Outlook July 2006, the long run average for residential rental vacancy rates is just above 3%. Throughout 2000 to 2004, the rate was actually above this, but since the end of 2004 onwards the rate has been under 3% and continues to fall.
This is the result of several factors including reduced housing affordability and falling development approvals. In all States, rentals in dollar terms have increased and with available rental stock diminishing, the competition between renters grows. As an effect of the interest rate rise in the last quarter, (and the possibility of another before the year end), coupled with the regular occurrence of new developments being deferred due to rising construction costs, we are likely to see a further increase in weekly rents and record lows in vacancy rates across all capital cities. In this newsletter we focus on the performance of the residential rental market in each of the major cities, and why more residents are opting for renting over buying.
MELBOURNE
Currently at 1.7%, Melbourne vacancy rates are the lowest they have been in over eight years. Vacancies are the tightest (1%) in the city and inner-city suburbs within 4km of the CBD, where the majority of the accommodation is apartments. The Real Estate Institute of Victoria predict that vacancies will fall again (particularly with another rate rise) as buyers defer purchasing and remain in the rental market longer.
SYDNEY
Rental returns are increasing with current weekly rates now $20 more than the same time last year (an increase of around 5.7%). The limited supply of new rental accommodation is leading to sharp rises in rents. In Sydney, the weekly rental cost is approximately $300 cheaper than the average mortgage, so it is no wonder we are seeing renters stay where they are rather than become owners. The latest vacancy rates for Sydney were just released last week at 1.7%.
BRISBANE
Recent research by PRDNationwide has found that Brisbane inner-city apartments are currently achieving gross rental yields of above 5.0%, showing an improvement in the market and potentially fuelling investor interest. Vacancy rates for inner city units have been below 3.0 per cent (currently at 1.9%) since June 2004 and with strong demand for inner-city rentals, we believe that vacancy rates will continue to fall.
2007 and BEYOND:
As we look to 2007, available rental stock will continue to decrease whilst rental yields increase, leading to historically low vacancies and, quite certainly, chronic shortages in rental accommodation.
As a consequence of rising rents and a shortage of detached housing, property values in Sydney, Melbourne, Brisbane will rise by 2008. As reported by Michael Matusik in his September snapshot, A 1960's-style recovery, driven by an undersupply of houses rather than interest rate influences, would prompt price rises'. Matusik goes on to say 'changing demographics, changes to superannuation and most importantly the tight rental market are likely to drive recovery in housing starts. Recent reports from other leading market commentators such as REIV and Residex are all reporting similar things - the deterioration of new housing supply over the next 12 months or more, potentially leading to the next market recovery.
Source: Home Port Property