People often say that investors are the marginal price setters in the property market, especially in Sydney and Melbourne. If true, the below story from The AFR will have the property industry concerned, given investors are reportedly set to dump rental properties:
One in three renters face housing stress and are at risk of defaulting their rental payments, while more investors are selling their rental properties before prices drop even further…
The data compiled exclusively for The Australian Financial Review by Digital Finance Analytics also showed the number of stressed Sydney renters has jumped by 16.4 per cent to 447,535 tenants compared to seven weeks ago when the data was last analysed…
“Despite record low interest rates and mortgage reprieve by the banks, almost one in eight investors (12 per cent) are seriously considering selling up before prices and rents fall further,” [Martin North] said.
“In April, only 8 per cent of landlords were thinking of putting their rental homes for sale”…
“I think the rental sector is facing a major shock… From those renting, caught by cash flow issues, through to property investors who are waking up to the fact the property investing is hard work”.
Logically at least, North’s arguments make sense.
The rental market is facing stiff headwinds from:
- Rising unemployment and falling incomes;
- A collapse in immigration (including international students), which will impact Sydney and Melbourne disproportionately; and
- A sharp rise in supply as the huge dwelling construction pipeline is exhausted and short-term rentals are placed onto the long-term market.
According to SQM Research, these dynamics already saw a big lift in rental vacancy rates in April, especially in Sydney (+1.0%) and Melbourne (+0.9%):
The increase in vacancies was driven by inner-city areas, which are ground zero for both Airbnbs and international students:
Asking rents across Sydney and Melbourne are also plummeting, according to SQM:
This represents clear downside risks to property prices if it manifests in negatively geared investors becoming fed up or forced to sell their investment properties.