Is this market good for property investors or tenants?

Graeme Salt

Sydney’s residential rental market remains tight. According to two surveys Sydney’s vacancy rate is


 


· 1.9 per cent according to SQM; and


· 2.2 per cent according to the Real Estate Institute of NSW


 


The REINSW survey also concluded that vacancy rates were:


• Inner suburbs (0-10km from CBD) up 0.3% to 2.2%


• Middle suburbs (10-25km ring) steady at 1.9%


• Outer suburbs (more than 25km out) down 0.2% at 2.1%


 


To me, these figures prove that there are markets within markets and that potential investors should do their research before signing on the bottom line. While the vacancy rates throughout Sydney are pretty good, Melbourne tells a sad story for investors. According to SQM, Melbourne’s vacancy rates are 2.9 per cent – a level which gives tenants the whip hand when it comes to negotiating rents.


 


There are many people who have invested in Melbourne over the past years who are now losing money hand-over-fist. The banks know that rental markets can fluctuate and this is reflected in their lending policies. For example, when assessing an applicant’s ability to repay a loan, they only take into account 80 per cent of the rental income an investor is likely to achieve (AMP is the exception and can go up to 100 per cent sometimes). As a result, investors can often be disappointed when applying for an investment loan.


 


The moral of this story is, of course, do your research. Property is a long term investment – despite the ups and downs wherever they may be.


 


So, is this rental market good for tenants or landlords? It depends on where you are.