Rents have collapsed in Sydney

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From: Colin Mills


Just thought I'd rain on everybodys parade (all this talk about prices booming is starting to get boring anyway) but I just re-let a couple of my places down in Sydney(units on lower North Shore) Leases were $550 p.w. last year. Today (drum roll) $450 p.w.! Ok so its only beer money but it must prove something! To top it off one was empty for 8 weeks! Longest vacancy (by about 11 weeks from memory) in 14 years. The agents tell me the "old boy" working in the property management office has never seen anything like it in 20 odd years.
Evidently Sydney vacancy rates are starting to nudge 4%. Now lets put all this together. Increasing vacancy rates coupled with falling rents (20% in 12 months) and what does it mean? Based on past experience it means one thing - falling prices! Based on my places I would suggest prices are way out of whack for the rental return. The current return as a percentage of price is less than what I was getting in the late 80s! And we all know what happened in the early 90s.
 
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Reply: 1
From: The Wife


Are they leaving the units to go get a mortgage with a helping hand from the FHOG?

I am looking to buy small to medium whole blocks of units or townhouses in Sydney inner area, if anybody knows of any going real cheap, theres a spotters fee going! Although I think I may need to wait another 12 months to get it at the price I need, any suggestions?



TW
~Life is a daring adventure, or nothing at all~
 
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Reply: 1.1
From: Sergey Golovin


About 10 years ago it was only couple of pages Rent/Lease in “Wentworth Courier” Sydney Eastern Suburbs Newspaper/Magazine.

Now there are about 15 pages I have counted about month ago.

Serge.
 
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Reply: 1.1.1
From: Chris Legg


Surely this is just the high end of the market being a lot more sensitive as usual

Anyone got any info on the real world of $200
p.w. to $300p.w. rents?
 
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Reply: 1.1.1.1
From: Mr Hat


Yep...I got one. I think Colin's doom and gloom is a bit premature. I also have a North Shore unit that was vacant for 3 weeks...but I painted it, cleaned it up and put my rent UP $10 per week. If you stick to the rule of median priced property, you will never suffer as those looking for top dollar. The FHOG combined with decreasing IT employment levels has kicked the upper end in the guts.

I don't foresee a dip in the market....in fact I see the opposite. As soon as all the FHOG people have their new houses, the vacancy levels will come back to normal levels.
Chin up
Cheers beers
Mr Hat
 
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Reply: 1.1.1.2
From: Paul Zagoridis


On 8/17/01 12:28:00 PM, Michael Croft wrote:
>TW's question is pertinate
>because if the market is being
>driven by the fhog, rents may
>fall in areas of high
>ownership but prices continue
>to rise. Now I confess that I
>don't remember having seen
>this before, but it is
>happening here in Canberra.

Sydney? I've seen rents stay stable while prices sky-rocketed, so rents fell in real terms. It's what happened slowly during 1992-1998.

I saw rental yields fall from 10-15% to 6% in 1989-1999. Prices rose while rents/inflation stayed low.

>Rents softening and prices
>rising - gotta mean something!
>Come on Paul Z, you're an
>economist too - what do you
>think?

Remember I went broke after betting the farm that a Labor government would NEVER allow first mortgage interest rates to hit 18%.

I smashed my crystal ball and burned my priestly vestments. Broken and humbled, I fell to my knees and foreswore those wicked idolatrous ways.

Now I just deal with "what is", not "what should be". Even read "Who Moved My Cheese" last night.

>Supply and demand theory would
>say that their must be two
>markets emerging; one owner
>occupiers, the other
>investors and tenants.

I think that has been the case in Sydney since at least the 1970's. As the bubble rises prises have less and less to do with fundamentals (investors and tenants). Actually the Dutch Tulip Bubble of 1624 started it all.

But there is not such thing as "the Market". Peter Spann and I both buy units in the inner east. But we never cross paths.

There are market segments in every capital city. Equivalent to penny dreadfuls, mining and oil, IPO's and blue chips.

>If this is the case a
>rewriting of IP text books is
>upon us. Most IP books
>intimately link the two. Are
>we witnessing an unintended by
>product of the fhog??

Uh-oh another government intervention to assist the market actually skewing it dangerously.

That's another "conventional wisdom" that we may just smash. Do tenants in Inner Sydney really want to become home owners? And does the FHOG really turn cheap rental tenants into cheap home buyers?

What impact does all the new units built in the CBD and inner city/north have on 3 year old units? I sold my apartment home because I saw that segment as crowded and not my normal investment.

>You read it here first!

Glad to acknowledge it. I don't think I know anything, but I am fast and smart (and good looking ;-) ). That way I don't have to rationalise "why is it so", I just look for opportunities to make money. Freestyler anyone?

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 1.1.1.3
From: Donna Larcos


Not collapsed, just "flaccid". I just put the
rent up $10 p.w. on a studio in Potts Point
and haven't heard a murmur from the
tenant whose been there eighteen
months. My other one is leased until
January so untested as yet. I remember
our house in early 1980s did nothing in
terms of capital growth for three years.
The rental market was jumping,
executives were paying big money for
both rents and big houses. Then the
stockmarket crashed and suddenly all
those investing in shares couldn't afford
the big houses any more and suddenly
there was a boom at the lower end.
Capital growth soared.

Now the rents are flat or lower but the
pressure of all those 1st home buyers is
pushing up the property prices so we get
capital growth instead. Eventually, the
prices will become too expensive again.
Capital growth will level and the rents will
be rising. It's a see-saw. It's really like
computers - when the screen goes
blank and then REALLY DARK - DON'T
PANIC. Just think your way through it and
don't give in to emotion!!

D
 
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Reply: 1.1.1.3.1
From: Colin Mills


Collapsed may have been too strong a word to use re falling rents. However the fact remains I'm 200 bucks each week out of pocket - nasty business this IP game! But after 18 years investing I've seen it all before which, of course, led me to predicting a falling market - more than likely next year.(Presumably increasing rates would be the catalyst)
As a Brisbanite I'll keep buying up here.(Melbourne is so over priced I won't even mention it!) Still reckon houses in Wilston/Windsor area with limited city views UNDER $300k are the way to go. (Yes - I already own property in the area but want more - lots more)
 
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Reply: 1.1.1.4
From: Paul H





Notice: This e-mail and any attachments are confidential and may be subject to legal or some other professional privilege. They are intended solely for the attention and use of the named addressee(s). They must not be disclosed to any person without authorisation.

This e-mail and any attachments are also subject to copyright. They may only be copied or distributed with the consent of the copyright owner. If you are not a named addressee you must not use, disclose, retain or reproduce all or any part of the information contained in this e-mail or any attachments.

If you have received this email by mistake please notify the sender immediately by return email and delete or destroy all copies of the email. Any confidentiality, privilege or copyright is not waived or lost because this email has been sent to you by mistake.
 
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Reply: 1.1.1.4.1
From: Robert Forward


So much for the email being confidential Paul.

hehehe....

But it was quite an informative email.

Cheers
Rob
 
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Reply: 2
From: Rolf Latham


Hi Colin

Have heard that a lot recently.

My gut feel says Correlation between rents and capital value tends to work the other way round though in high growth, low yield markets.

Prices here in Sydney at this time are indeed not determined by rent but simply the anticipation of greater future capital growth.

You usually cant have both strong cap growth and maintain rental yields at the same time.

During periods of high growth and thereafter yields must suffer simply because you cant jack rents by 20 % per annum.

Then on the other hand my gut feel could be totally wrong.

ta

Rolf
 
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Reply: 1.1.1.3.2
From: Sim' Hampel


I think what you are seeing there Donna is ignorance on the part of your existing tenants. We were quite happily paying $315 per week rent for the 2BR unit in Artarmon we've been renting for 2 and a half years until someone pointed out to us that the rental market was easing.

I went out and looked at units for rent in the area for the first time in several years and discovered that other units very similar to ours are renting for less than $290 per week with landlords offering up to 4 week free rent. In addition to this there are LOTS of units vacant !

We are currently in the process of looking for another unit of better quality for similar money, or else we will go back and renegotiate with our landlord for cheaper rents.

There are lots of older style units in this area, and it is primarily those that are remaining vacant the longest. Better quality units are always in demand.

The problem is that the older style units are the affordable ones but people prefer the newer style. If you go too new or upmarket, such as those in the Forum building in St. Leonards, you end up with the situation where there are quite a few units available over the $700pw mark. Oooh, that's gotta be hurting the cashflow having that income missing for a while !

 
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Reply: 2.1
From: Dave :)


Rolf,

I reckon your gut feel is right.

13 months ago a $300K property rented at $350 p/w. That's what, 6%
yield? This same property is now worth $420K and still rented at $350
p/w. It's now returning 4.3%. To some, it's now a 'poor' investment.
(not to me it's not) So, if property values continue to grow at this
rate, yields of 3% will soon be common. Arghhh!!! I can just picture
the masses rushing off to the stock market or friendly banker to open up
'secure' term deposit accounts instead.

If this growth in prices does continue, would it be reasonable to say
that cash flow positive properties, in GROWTH areas, will be an
endangered species? I reckon they are already...unless you dump a
significant retrenchment package lump sum into a deposit to buy one.
The times, they are a changin'....

A friendly challenge. I want to hear from anyone in Melbourne who is
getting more than a 6.5% yield in an IP within 5 kms of the CBD.

Weird thing is...inner Melbourne currently has one of the lowest vacancy
rates in history. The FHOG mustn't be as attractive to the GEN X people
out there who want to live near the pulse of the city - there's just no
damn land, and their $14K FHOG is no good - it doesn't even buy them a
letter box in the areas they want to live in.

Cheers,

Dave
:)

{Life's short..play hard...and capital growth is King}
 
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Reply: 1.1.1.1.1
From: Diane -


Properties in South Western Sydney are in demand for rental $200 to $300 range. We had a slight drop in demand about 6 weeks ago then it took off again. Have had no problems re letting our properties but all are in immaculate condition. Also have been able to increase rent from $210 to $230 for a 3 bedroom duplex.
 
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Reply: 2.1.1
From: Rolf Latham


Hi Dave

This be why one needs to look at combined rate of return which puts to rest some interesting generalisations such as Units are less of an investment than houses becasue land content appreciates whereas the building depreciates.

While generally true, hence a generalisation, I can show you stats on Sydney market where in reality, units have performed equal to or outperformed houses.

ta

Rolf
 
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Reply: 2.1.1.1
From: Andrew S


Hi Dave,

It may be true that vacancies are low in Inner Melbourne, but the fhog is having an impact in outer areas. I live in the city of Casey and of late there have been quite a few for-lease signs around. I have never particularly seen any before - everything rented out before it got to the sign stage. Vacancy rates are definitely growing. I guess that being in a major growth corridor where there is still plenty of land many people who were renting are now buying courtesy of the fhog. I imagine it is happening in other outer areas as well.
Fortunately, (by design really) I only live in Casey, I don't have any IP's here. Thankfully Melbourne still has many in demand places where the vacancy rates are low.

Mr Jolly
(aka Andrew S - there are too many Andrews)
 
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Reply: 2.1.1.2
From: Terry Avery


Hi Rolf,

Concerning stats on the Sydney market showing that units perform better than
houses... would you qualify that by saying in certain suburbs.

Peter Waxman in his book (Investing in Residential Property: Chapter 13, The
Sydney Residential Property Market 2000) says that in the Olympic corridor
this is so but that in 18 of the 42 LGAs houses performed better. A case of
knowing your area I guess.

Cheers
 
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Reply: 2.1.1.2.1
From: Rolf Latham


Hi


Yep, only in certain areas. My point was the generalisation commonly used to dismiss unit purchases as being poor investments.

One must look at a LOT of numbers to come up with comprehensive results.

For the majority of investors it is the holding cost (or return if youve done really well) and the cash input % combined with capital growth that make up what is or is not a great investment.

On many areas of the lower north shore for example it can be clearly shown that an investor using a 95 % I/O loan would have be better off purchasing a median unit rather than a median house - indeed in many areas now you can not get into a median house with 95 % loan.

Am I being picky, I dont think so, but then Im a scientist by background and generalisations dont sit well with me.

Ta

Rolf
 
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Reply: 2.1.1.2.1.1
From: Terry Avery


Hi Rolf,

So is that a generalisation about scientists that generalisations don't sit
well with them?

Cheers
 
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