Property investment: More rentals in Sydney and Melbourne, what next for investors?

The number of advertised rental properties in Australia’s two largest cities, Sydney and Melbourne, have ticked up once again according to new estimates from CoreLogic. 

The latest data shows that the total portion of rental stock advertised in Sydney over May was 4.5%, up from 4.3% in April. Meanwhile, Melbourne recorded an increase from 3.2% to 3.6% over the same period. 

In the case of Melbourne, CoreLogic estimates that the increase translates to roughly 3,000 additional properties appearing on the market, meaning that around 27,000 properties in total were advertised for rent during May.

According to CoreLogic’s head of Australian research, Eliza Owen, a number of factors largely related to the fallout from COVID-19 are likely responsible for the state of the rental markets in Sydney and Melbourne, including reduced numbers of overseas students and migrants.  

“One of the big drivers of demand for rental accommodation is overseas migration. Most people that come to Australia from overseas, whether they are a skilled migrant, a temporary visa visitor or a refugee, will rent when they first come to Australia,” she said.

“Another factor contributing to less rental demand could relate to the predominance of Sydney and Melbourne for foreign student numbers. With foreign student numbers falling by close to 100% compared with a year ago, along with domestic students largely studying from home, rental demand from tertiary students has been depleted.”

Prospective investors face rocky short-term outlook 

While the greater amount of properties for rent is no doubt a boon for renters in particular areas of Sydney and Melbourne, will prospective investors need to take the current situation into account before buying? 

“Yes, absolutely. It’s a huge factor for investors looking to purchase in either city - particularly in inner-city areas where a downturn in the number of students, migrants and tourists is most keenly felt,” said Mozo Property Expert, Steve Jovcevski. 

“While international travel restrictions won’t be in place for ever, investors should factor in the potential for reduced rental returns and even the possibility of the property remaining vacant for as long as 4-6 weeks - at least in the short-term. Although this could even stretch into next year.” 

However, Jovcevski stated that the competitiveness of the home loan market in recent months means that low interest rates could prove a silver lining to investors.  

“While the focus has largely been on owner occupier rate reductions, investor rates - particularly fixed interest rates - have plummeted as well, which means that now could be a good time to fix your rate and lock in a bit of repayment certainty with it.” 

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