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Question over rental market's longevity

10 February 2014 Steven Cross and Stacey Moseley

A senior economist has revealed doubts over the performance of the Sydney rental market in 2014.

Speaking with Residential Property Manager, senior economist at Australian Property Monitors Dr Andrew Wilson said the investor ‘avalanche’ may cause damage to the rental market.

“We saw an enormous avalanche of investment activity moving into the housing market, which is one of the factors that drove house prices up, especially in the Sydney market,” he said.

According to Mr Wilson, in the 11 months to November last year, the Australian Bureau of Statistics (ABS) reported nearly $100 billion in investor loan finance approved, nearly 30 per cent higher than the same period in 2012.

“NSW accounts for over 40 per cent of all investor activity, according to ABS, and a lot of that is in the western suburbs of Sydney, where there has been that chasing for higher yields. It will be interesting to see if new rental stock will impact the underlying fundamentals of the Sydney rental market.

“Have we overshot the fundamentals? Are there enough tenants out there to go around for all these investment properties looking for tenants? We will see,” Mr Wilson said.

Falling rental yields are also an indication that the rental market may be weakening.

“That’s not just because house prices are rising, but it’s also because rents are flat lining and ticking back a little bit as well,” he said.

Vacancy rates are already reacting to the influx of investors, according to Mr Wilson.

“This is no surprise; we have record levels of investor activity and new rental stock coming into the marketplace, so it will be interesting to see if we have enough demand to meet that extra supply that has come in,” he said.

Question over rental market's longevity
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