Investment property opportunity in Sydney

Over the past 8 months, we have been exposed to a barrage of media coverage about the “global credit crunch” and the impact this has had on the UK and US property markets.  We are also being told over and over again that the Australian Real Estate market will be affected as well. 

So far, we have seen a nervous market that is based on “what could/will/might happen”.  This is more media and fear driven than cold hard stats. 

According to statistical information from SQM research, the vacancy rates in Sydney’s Inner areas are actually increasing:

Vacancy rates in Sydney’s

• Eastern Suburbs           5.4%
• Lower North Shore       7.2%
• Inner West                  3.6%
• Northern Beaches         3.4%

SQM research’s statistics are based on online rental listings and data from the Australian Bureau of Statistics. 

One of the reasons for this increase seems to be based on people deciding the rent their property rather than sell.  This is creating an abundance of properties seeking over $600 per week – not really the true investor’s end of town. For tenant’s wanting to rent properties under $600 per week, the vacancy rates are significantly lower.

Could this be the start of the investor boom in Australia?

Over the past 12 months rents have increased.  12 months ago, I was using an average rental return of 3.5% on a Sydney property, now I am using 5% (adjusted on a suburb and type of property basis) and this increase is not due to property prices falling.  Rents can only increase if demand allows it to.  It does not matter what the level of a mortgage is.  If it did, landlords would be doubling the rent to cover this cost.  

The combination of Generation Y leaving home, strong migration patterns and a weak building sector is intensifying demand. The shortage of affordable accommodation will no doubt add to the growing number of displaced renters who cannot afford to live in well located areas.

The high interest rates and negative media coverage of the property market has dampened buyer demand and with it has been a slight fall in property prices.  The RBA is talking of reducing the interest rate next month.  This will make the investment property market more attractive as the cost to hold a property will fall.  The window of great investment property bargains is possibly about to close.