Property investors slaughtered as rental market busts

Property investors are being slaughtered by rising vacancies and falling rents, according to The AFR:

Soaring vacancies and widespread rental discounting have squeezed investors’ cash flows to the extent that almost two in every five landlords are in a position of financial stress.

The closure of Australia’s international borders in March that cut demand from tourists and international students has put CBD rentals under pressure and triggered a surge in vacancies…

Competition for tenants has further intensified as short-stay landlords switched properties into the long-term rental market, leading to situation in which the owners of 820,000 rental properties were stressed and an additional 123,000 were “severely” stressed, analysis by Digital Finance Analytics…

A property is considered to be in stress for its landlord when it has been vacant for more than two months and rental incomes are insufficient to cover running costs…

“I’ve never seen this level of investor stress in the past,” Mr North said.

“It’s a perfect storm thanks to COVID-19, the previous massive run-up in investment properties, fall in rental income, collapse of Airbnb demand and no inward migration.”

The pressures facing property investors was revealed by SQM Research’s latest rental vacancy report, which recorded soaring vacancies across CBD areas:

Sydney looks especially vulnerable given it has Australia’s highest concentration of investment properties. It is also the prime international gateway to Australia.

As such, Sydney is heavily exposed to the collapse in immigration brought about by COVID-19.

Sydney’s rental market was already falling pre-COVID-19, down 1.0% in the year to March, according to the ABS:

Now it is facing an outright rout as immigration collapses, Airbnbs flood the long-term rental market, and job losses mount.

Pass the popcorn…