Living in Sydney is set to become even less affordable, with rents predicted to rise by more than 40 per cent in the next five years.
According to a new report, released by BIS Shrapnel, apartment rents are forecast to rise 42 per cent over the five years to June 2011 - an average increase of 7.3 per cent per annum.
"A peak in vacancy rates lead to static rents and low rental returns, which caused investors to beat a retreat," explained BIS Shrapnel senior project manager Angie Zigomanis.
"Since investors have left the market, pre-sales which trigger construction have fallen away and new apartment completions have been drying up."
Scott Woodcock, Executive Director of the Urban Development Institute of Australia also predicts a similar upturn in rents.
"The present residential rental squeeze in Sydney is a by-product of a lack of investor confidence in the market," he said.
"The state of the market and delays in planning determinations is directly precluding construction in Sydney. With very few new apartments approved, there ain't nothing going up but the rent."
According to the BIS Shrapnel report, the shortfall in Sydney apartments for rent will become even more acute in 2007/08 due to continuing strong tenant demand, coupled with the decline in apartment completions.
"The lag between off-the-plan apartment sales and completion means that even if investors do return, it would take some years before their purchases are translated to new rental supply," Zigomanis explained. "Therefore, the deficiency of rental dwellings will potentially be sustained through to 2011 and beyond."
However, Zigomanis believes investors will have to wait longer to see a better return in prices. He predicts it will take two to three years of rental growth before yields improve to a level that will draw investors back to the apartment market. Consequently, no significant upturn in prices is anticipated until 2008-09.
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