Property wrap-up: Rental vacancies climb as market faces biggest blow in decades

The coronavirus pandemic and resulting economic fallout have dealt a serious blow to the rental market, with the total number of vacant residential properties in Australia now at 88,688, according to data from SQM Research.

The nation’s business districts have been particularly hard-hit. Vacancy rates in the Sydney CBD jumped up from 5.7% in March to 13.8% in April, an increase of more than double. The Brisbane CBD registered a similar increase, with vacancies rising from 5.7% to 11.3% over the same period.

In Melbourne, the percentage of empty properties in the CBD went up from 2.6% to 7.6%. But it was the Southbank area which was impacted the most, with rental vacancies in the cultural hotspot reaching 13%.

“The blow out in rental vacancy rates for the major CBDs suggests a mass exodus of tenants occurred over the course of March and April,” said SQM Research managing director Louis Christopher. 

“This might be attributed to the significant loss in employment in our CBDs plus the drop off in international students.”

With unemployment set to spike over the June quarter, many Australians have been forced to rethink their living arrangements. In NSW alone, tenants of 26,500 residential rental properties requested a bond refund in the last month. 

The growing number of rental vacancies has also put downward pressure on rents. According to SQM data, asking rents for houses in capital cities has dropped 1.3% over the month, and 3.1% over the year.  

“If it is sustained throughout the course of the year, then we can expect far deeper falls in rents which will be good news for tenants but a disaster for landlords,” Christopher said.

“There will also be economic consequences with further sharp falls in building approvals likely; thereby risking a major depression in our residential construction sector as well as the rather obvious risks for housing prices.”

What about property prices?

All told, the outlook for property owners at the moment is quite dismal, with economists from all four major banks warning that sharp drops in home prices are on the horizon. 

CommBank was the latest to sound alarm bells. In a presentation to investors this week, it charted two possible outcomes of the current downturn. 

Its baseline forecast - in which the economy suffers a 6% drop in GDP in 2020, before bouncing up by 6% next year and a further 3% in 2022 - assumes an 11% decrease in property prices over three years.

But the bank also considered the possibility of a more ‘prolonged downturn.’ In this scenario, the economy shrinks by 7.1 % this year and another 0.8% in 2021, before recovering only 2.3% in 2022. If realised, models showed property prices plummeting by 32% over three years.

Opportunities arise for first home buyers

Of course, the flipside to all this is that it’s given a confidence boost to many Australians hoping to take their first steps up the property ladder. 

According to Mozo's property expert Steve Jovcevski, now is a prime time to get into real estate – assuming you’re on sound financial footing and your job is insulated against the current crisis.

"Prices may come down more and with less competition at open inspections, first home buyers might have a chance to buy into a suburb that a few months ago they may have thought was out of reach," he said.

Another happy outcome of lockdown is that it’s forced many to rein in their spending, something which could help first homebuyers get into lenders’ good books down the track.

“As lenders look at recent spending patterns to determine the size of the mortgage you might secure, lower spending levels mean you should be able to borrow more,” said Jovcevski.

So if current circumstances haven’t deterred you, browse our guide to making your property move during lockdown for more tips. And if you’d like to compare home loans, visit our home loan comparison page for an overview.

Home loan comparisons on Mozo - last updated 9 December 2023

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