NSW Excerpt from the 2012 November Market report


Years of intense rental pressures show signs of bringing first homebuyers flocking back into the city’s property markets

 Sydney property has had a dose of silver medal sprinter syndrome. In August, three weeks after Usain Bolt won the men’s 100m Olympic sprint, his Jamaican compatriot Yohan Blake ran the world’s second fastest 100m on record, a good deal faster than anything Bolt had run in London. Unfortunately for Blake, no one really took any notice.

It’s a feeling that the rental market has shared in Sydney. The Real Estate Institute of New South Wales (REINSW) has reported that the vacancy rate across all Sydney suburbs hit a six-year high in July, but still being around the tight mark of 2.2%, no one is paying this record much attention either.

REINSW data shows this is the first time since August 2006 that the vacancy rate across the entire city has exceeded 2%. Higher vacancies were recorded in all areas of Sydney, with inner city suburbs going from a rate of 1.8% to 2%.

“The fact we are now seeing the [highest] vacancy rates in more than half a decade is an indication of just how entrenched the rental crisis has been in NSW,” says REINSW president Christian Payne.

A city-wide vacancy rate of 2.2% is well below the benchmark of 3%, a number investors generally use to pinpoint a balanced rental market. Payne says a lot will need to be done for the rate of vacancies to increase further and there would need to be a sustained pattern of high figures for pressure to ease off the Sydney rental market.

Rental pressures

What is currently keeping vacancies tight is the low level of construction commencements at the moment – a lagging effect of the GFC. BIS Shrapnel’s Inner Sydney Apartments 2012 to 2019 puts it into perspective: “The lower level of construction, instigated by the GFC in the latter half of 2008, constrained new apartment completions. This further tightened rental markets which, together with the post-GFC fall in prices over 2008/09, resulted in rents and yields rising,” the report says.

 The report’s author, BIS Shrapnel senior manager Angie Zigomanis, says rising rents and promising capital growth encouraged a lot of investors to purchase in Sydney in 2010 and 2011, resulting in more construction projects commencing to meet the demand. However, he believes that over the long run, the rental market will remain tight.

He says around 2,000 new rental apartments will be built in inner Sydney in 2013/14, but this will not be sufficient to erode pent-up demand in the rental market. Zigomanis adds that despite further high construction over the following two years, his organisation sees a modest deficiency of apartments lasting until 2016.

“This environment should continue to support rental growth in inner Sydney apartments. The continued tight rental market and rising rents are expected to support further investor demand and, consequently, price growth over the next two to three years,” he says.

Optimism grows

But if construction levels aren’t solely responsible for the mild increase in vacancy rates, what else is?

In the mind of Australian Property Monitors’ senior economist Andrew Wilson, a plausible explanation might simply be that many renters are becoming buyers. First homebuyers and other segments of the market who may have been sitting on the fence before, could be getting tired of paying excessive rents and may have decided now is the time to start buying.

Wilson says many factors could be putting renters into a buying mood. Sydney incomes are rising, unemployment is low, rising population requirements are not being met by the current supply of housing and there is stiff competition for rental properties.

“Sydney’s housing market has shown definite signs of a revival,” Wilson says. “Buyers have become more active, as evidenced by rises in median house prices, higher auction clearance rates and a significant increase in the number of housing loans approved, compared to last year.”

As evidence of this, RP Data figures show that Sydney dwelling values increased 0.1% over August, recording 2.4% capital growth over the three months prior.

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