Property investors buried under apartment collapse

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.

Leith van Onselen
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Comments

    • Strange EconomicsMEMBER

      Plummetting? – 0.4% and mostly in the central melbourne dogboxes where there are no foreign renters now. In the burbs much slower.
      The rest is dropping slightly , but will soon be -!0% a year in rent as the owners have to drop rent 10% to attract a tenant from another house. 10% less rent and people move.
      Each owner in turn gets a 6 week vacancy now every year, till they drop the rent another 10 %…
      ..But Neg Gearing to save the day for landlords – can’t remove that no matter what the deficit can we.

      • No idea where you pulled your number from, the article shows rents in inner Syd and Melb down 7% in a quarter. That’s plummeting.

        Bear in mind also that eviction moratoriums, mortgage holidays, JobKeeper tapering and extra JobSeeker tapering haven’t even hit yet. When they do hit, you will see a new definition of pain.

      • A really good point Strange one. Churn can be a real killer and if rents are dropping then renters might be more inclined to take out a 6 month lease so an investor could quite easily be ‘caught’ with two vacancy periods in a year. 3 months lost rent – ouch.

    • Yeah I saw that. Good. Another dud exposed. But how many more? Probably lots that were built in the last 3-5 years in particular.

    • The building is 20 years old. That’s how long this kind of excrement has been around.

      • I think you might find that the building would have been fine until they started tunnelling under it for Westconnex!

  1. House investors are in even worse situations because houses have lower yields due to higher price growth expectations. Also house rents fell even hard

    Heaps of 1m to 2m investment houses with yield well under 2% and no tenants

  2. SoMPLSBoyMEMBER

    Whooo-eee!
    For many specufestors, it will be their first time that true ‘price discovery’ will emerge uninhibited by powerful forces designed to hide (distort) it.
    Jaws ( and marmalade on its way to the morning crumpet) will be dropping in astonishment as this news begins to ricochet around town.

    • Speaking of marmalade, I whipped up a ripper batch of Ruby Grapefruit last week that I rescued from our house we sold as we left for the last time (along with 100 avos)

  3. What is usually ignored is the “jaws of death” that will snap on the little landlords. As banks’ balance sheets get vapourised they will start to charge more on the variable rate mortgages to repair the damage, regardless of the OCR. So little landlords will face falling rents, rising costs and falling values all at once.

  4. kiwikarynMEMBER

    With any luck, most of those CBD dog boxes are owned by overseas investors, since they were bought off the plan, and overseas buyers cant buy established housing {cough}. This then becomes a Chinese problem. Or a Chinese bank problem. Or, if they were really stupid and lent money to people they won’t be able to find, an Aussie bank problem.

  5. the only migration action occurring is within Australia… people are fleeing the East and heading West for sun-shine, work and virus-free living

    • DominicMEMBER

      Add North in there … we’re being overrun here in SE QLD. Sometimes I think I’ve woken up in NSW given the sheer number of NSW plates up here now.

    • kiwikarynMEMBER

      Can you guys start paying Kiwis to stay there, so they stop coming back? Apparently, people are being told its ok to “work from home in NZ” so they are all migrating to the land of the (virus) free.

  6. working class hamMEMBER

    When the public actually realise that all the numbers they have been using are fraudulent, real discovery will start.
    I really hope that foreign investors get burned on dogboxes.