Stability in rents, volatility in sales prices. What does this mean for those relocating to Sydney and Melbourne?

Sydney and Melbourne rents have shown continuing stability over the last twelve months.

Sydney houses have averaged approximately 2% increase, with some areas e.g. Lower North Shore increasing by up to 5%.

Melbourne houses have averaged approximately 2.7%, with some areas e.g. Bayside seeing increases of up to 10%.

Property Selling Prices

Indeed rent stability has been a feature for a number of years, despite quite substantial increases in selling prices as the table of house prices below illustrates:

Changes in the 5 years to March 2017

 Sales Price IncreasesRental Increases
Sydney82%17%
Melbourne54%15%

Property investors have relied on price appreciation to achieve reasonable overall financial returns.

However, recent indications are that there has been a considerable slowing in property price increases. Consequently it can be expected that property investors will be seeking higher rental returns, and the question will be whether the market will allow that to occur.

Vacancy Rates

A factor supporting the prospect of higher rents is the current low vacancy rate in Sydney (1.9%) and Melbourne (2.3%). The vacancy rate represents the proportion of rental properties that are available for potential renters to choose from at a particular time; typically a rate of 3% is regarded as providing reasonable stability i.e. a reasonable selection of properties and no particular pressure on rents.

Impact on Relocating Assignees

For new arrivals looking to rent, the consequences of low vacancy rates include:

  • Letting agents set “open for inspection” times, rather than on-demand, private inspections. Typically these are held on Wednesday and Saturday.
  • Large numbers attending property viewings, with multiple applications common. Competition to secure a lease approval.
  • Very limited negotiability on lease terms – the letting agent will simply reject an application seeking to negotiate
  • Decisions need to be made very quickly, with immediate payment of a holding deposit pending lease signing within a few days, sometimes within 24 hours of approval.

Data sources: Real Estate Institute of Australia; www.realestate.com.au