Property investors crushed between falling prices and rents

CoreLogic has released its quarterly rental review, which reveals heavy rental falls over the June quarter with more losses anticipated:

Nationally, rent values declined 0.3% in the month of June, and 0.5% over the quarter. This was the largest quarterly fall in rents since September 2018, and further falls are expected in the coming months.

Capital city rents have been more immediately impacted by the negative economic shock resulting from COVID-19. Capital city rents fell 0.7% in the June quarter, compared with a 0.2% rise in rents across regional Australia…

The decline in rent values over the quarter came at a time when the rental market was already relatively weak. Annualised growth in national rent values was just 1.1% in the five years to June 2020, compared with annualised growth in the selected living cost index of 1.4% in the 5 years to March for employee households. In other words, rents have generally seen softer growth than the growth in general cost of living for most households…

Closed international borders created a significant shock to rental demand, as historically the majority of new migrants to Australia have been renters. Furthermore, job losses in sectors such as hospitality, tourism and the arts, which ABS payroll data estimates has been around 20%, have also impacted demand, because households in these sectors are more likely to rent than in other industries…

Similar trends affect inner-city areas of Sydney and Melbourne, where rents declined significantly across these greater capital cities in the June quarter. Sydney rent values fell 1.3% across Sydney and 1.0% across Melbourne in the June quarter. Sydney and Melbourne unit rent markets each saw rent value declines of about 2.0% in the period…

Separate data released last week by CoreLogic also showed that inner Sydney and Melbourne have been hit especially hard by falling rents, driven by soaring vacancy rates:

The situation is doubly dire for investors given dwelling values across Sydney and Melbourne are also falling swiftly:

Thus, landlords in these two cities are caught in a pincer between falling incomes (rents) and falling equity (values).

The situation is likely to get worse for investors given:

  • Immigration into Australia has collapsed, which will most adversely impact Melbourne and Sydney;
  • Rental vacancies in these two cities will continue to build, given collapsing immigration and the strong pipeline of supply;
  • Unemployment will remain high, alongside falling household disposable incomes; and
  • Banks are tightening credit.

Highly leveraged and loss-making investors should consider selling before it’s too late. Because all signs are pointing down.

Leith van Onselen
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Comments

  1. TailorTrashMEMBER

    Highly leveraged and loss-making investors should hang on until they are wiped out and not try to off load to some poor kid who will go into a pile of life destroying debt to bail them out . They were savvy and took the applause ,clapping and back slapping at the Saturday morning debt auctions as they smugly outbid their kids.Now let them enjoy the applause and the clapping from the kids as their great savviness is is put on show . Now that I would enjoy

    • DominicMEMBER

      ” not try to off load to some poor kid who will go into a pile of life destroying debt to bail them out ..”

      Why not, TT, that’s how the ponzi works. Investors ‘deserve’ to make out like bandits as they ride the younger generations.

    • Yes, bring on the property price crash. Let the investors & banks suck mud.
      They are all thieves seeking to steal, hoard & profit by monopolizing land that was given free by the Creator.
      They all seek to be rentiers privately siphoning-off & pocketing economic wealth created by the whole community (probably whilst they were asleep).
      They are all heartless scoundrels heaping debt on future generations.
      If all taxes were ditched and the annual rental-value of cadastral lots (sites) collected instead, as sole source of public revenue, then land prices would drop to nil (+ value of improvements).
      This would end homelessness & exploitation of employees, give a base & home vege gardens to the unemployed, and cure the rich-poor gap within a generation.

  2. boomengineeringMEMBER

    Peter, hope this helps (reply yesterday)
    The Corso in Manly has very high rents, Surfection was paying 26k a week for a small prime pos and one on the other end is now for lease 2a The Corso Manly which they have been dropping the price for ( sorry couldn’t copy paste properly) Vaguely remember tiny shops 30 yrs ago costing 3M to buy.
    TT.
    Unfortunately for schadenfreude these properties do not change hands very often so they are probably owned outright as cash cows.

  3. LOL
    to show how rents fell only 0.1% corelogic used data for all of the rents including those under contracts signed before covid
    than to show rents falls in some areas they used average of new listings only
    why the didn’t include rent reductions than as well?

    lies, damned lies, and statistics

    • DominicMEMBER

      That may be the case but it will be fleeting — the regions can only benefit so long as people are able to exit their metropolitan assets at decent prices.

        • Strange EconomicsMEMBER

          Yes, talked to a guy last night in property, who told how he knows one Air BnB investor who hasn’t rented any of his 8 apartments in the last 6 months. Not count any Air BNB in the rental statistics.

          Never Mind, Negative gearing to the rescue.

  4. we must be marking the 100,000 no-NOM point, the point when we would normally have been up another 100,000 migrants, net, but because of the virus, aren’t.

  5. Ahh, crush, ahhh
    I see ya blowin’ me a kiss
    It doesn’t take a scientist
    To understand what’s going on baby
    If you see something in my eye
    Let’s not over-analyze
    Don’t go too deep with it baby
    So let it be, what it’ll be
    Don’t make a fuss and get crazy over you and me
    Here’s what I’ll do
    I’ll play loose
    Not like we have a date with destiny
    It’s just (aah) a little crush (crush)
    Not like I faint every time we touch
    It’s just (aah) some little thing (crush)
    Not like everything I do depends on you
    Sha-la-la-la, sha-la-la-la

    • Strange EconomicsMEMBER

      Quote – because it will give renters security of tenure. Of course NSW govt could in one message on a keyboard, introduce long leases for 1 million tenants. But that would affect those “investors”.
      Insecurity of tenure helps the property market demand – it is one of the most quoted reasons why people decide to buy. Next to “I can’t decorate the house even with a picture hook”.

    • blacktwin997MEMBER

      Heh, that second one: ‘Positioned in an area famed for its vibrant lifestyle’ – explains the bars on even the upstairs windows.

      Is that cheap for the location?

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