With inner-city apartment blocks hardest hit by the COVID-19 meltdown, property investors are being warned to prepare for heavy losses as both values and rents plummet in unison:
Tenants able to take advantage of the opportunity have a windfall. Rents have been cut, better terms negotiated and moves made to bigger apartments at less cost.
For investors, it is a painful experience, but with parallels to the downturns in Perth and Darwin which followed the collapse of the mining investment boom.
So is it time to exit?… rental listings had jumped by over 50 per cent in inner Melbourne and in Sydney’s city and inner south…
Ironically, as demand drops, supply is increasing with more apartments due for completion in Sydney and Melbourne as the super-cycle sputters to its end.
In Melbourne, another 17,950 apartments are under construction within five kilometres of the CBD, according to global real estate group JLL. In Sydney, 12,200 apartments are still to be completed within 10 kilometres of the city…
Brian Haratsis, the executive chairman at property consultancy MacroPlan, predicts that the value of apartments in inner Sydney will fall by around 12-14 per cent over the next three years and in Melbourne’s Southbank by 18-22 per cent…
With the migration pipeline turned off, and recession limiting domestic household formation, Haratsis estimates that significant housing demand will be “lost” over the next three years…
Haratsis says that since 2015, one quarter of all off-the-plan sales have been valued on settlement at 20 per cent or more below the purchase price and have been supported only by the rental income.
“When the rent stops, and the banks revalue the apartments, a contagion effect could set in, breaking confidence in the housing market and setting a momentum for declining prices”..
This week’s Housing Affordability report from CoreLogic tells the story.
The units supply pipeline remains strong in Sydney and Melbourne, both still running above decade averages:
Meanwhile, rental listings in both capitals are surging:
And rents are plummeting:
Price are of course also falling, but at a slower pace.
With minimal immigration expected over the foreseeable future, high unemployment and low income growth, both apartments rents and prices will continue to fall.
For highly leveraged landlords in Sydney and Melbourne, it is time to panic.