Vacancy Rates at 15% in 2009-10???

[Alan H]

I saw an article in The Dail Telegraph on the 27/8/02 titled "How to make tenants fall for your rental property". I pulled it out of the paper and said 'I'll read that in the next couple of days'........you got it........I JUST did! Where does the time go?

Anyway, I digress.........

Some quite good, basic but practical comments with quotes from Monique and Richard Wakelin, Chris Fitzpatrick, Di Jones Real Estate Managing Director etc.

The article also discussed current rental vacancy rates and said for July they were 4.4% although they had risen as high as 5% during the year.......ok......still nothing particularly new but they then quoted BIS Shrapnel.........

"BIS Shrapnel estimates vacancy rates will rise to about 15% in 2009-10".

What? 4% seems to be historically high! Now I know BIS Shrapnel have a mixed success rate with some of their predictions, but I would have thought if we had vacancy rates of 15%, the whole market would change dramatically.

Has anyone else heard anything about this BIS Shrapnel figure and its background(assuming it was quoted correctly)?

Vacancy rates of 15% in Sydney would make the Japanese Stockmarket 19 year lows look positively non-volatile!

 

[BKH]

I cant see 15% happening. AS time goes on less families are buying property to live in , The gov is slwoing drawing away from providing public housing.
As a coincidence following artilce appears in the Age. Whilst it talks about 2030 the principals will apply in 2010.

http://www.theage.com.au/articles/2002/10/03/1033538723880.html

Hey big spenders: a home is a dream
October 04 2002
By Tim Colebatch
Economics Editor
Canberra

 

[Sim]

Maybe in isolated areas you will get 15% vacancies (you do now already !), but as far as a city wide average of 15% - it would never happen.

There is only so much loss that people can handle - one of the biggest things to scare the average investor is vacancy. Most will sell up rather than go through the stress of an extended vacancy period. This has happened to several of my friends who "dabbled" in property investment - they sold out because they couldn't handle it.

Property markets will drop as investors pull out - and I can't see such strong demand for owner occupiers as all long term statistics show a movement away from home ownership in general.

Sure, at the height of a boom perhaps 15% vacancies is possible, but not as a medium to long term average - totally unsustainable.

 

[WillG]

Isn't Sydney seeing high vacancy rates at the moment ?

Anything is possible (high vacancy) if the investment property isn't selected in the right location, has little to offer, is one of many similar or is priced too high

Some causes of high vacancy rates may include :-

- Excess's of new housing
- First home owners buying rather than renting
- Government schemes to stimulate economy by incenting first home buyers to buy
- One company towns where company leaves or goes broke
- Rent to high
- Cheaper to buy than rent(Low interest rates)
- An area is overrun with undesirables
- Major industrial developments are built next door

In 8 - 10 years (2009 - 2010) most of the investors in this forum will have properties that are cashflow positive and will be able to absord higher vacancy periods with less risk to their portfolio. Those with mostly negative geared properties are at the highest risk if vacancy rates get abnormally high.

I would be more concerned if Interest rates rose above 10% in a short period of time. As investors, we don't have as much control over interest rates as we do over vacancy rates.

I say bring on the 'dooms day' media because the fundamentals of property investment won't change unless living on the Moon or Mars becomes more popular than living on earth !

Thats my 2 cents worth. (hope I haven't bored too many people)

 

[Steve Navra]

Hi Alan,

With no disrespect to BIS Shrapnel, wonderful organisation that they might be, but predictions of 15% vacancy is off the planet.

You know well my views about being predictive - nobody CAN tell the future and these that purport to be able to, are having you on.

Wasn't it BIS Shrapnel who were for MANY years predicting a rise in the Brisbane market????

Seems their predictions finally came true,
BUT tally up how many years of incorrect predictions it took, BEFORE this happened!

Regards,

Steve

 

[Alan H]

Yes..... I totally agree guys.......15% does seem 'just a little' off the mark.

Maybe they were misquoted ......or who knows.... surprise, surprise.......maybe it was just taken out of context to make the article sound more dramatic! No......I'm sure they wouldn't do that......would they?

I just thought someone may have actually bought the relevant report and could place it in context for us.

15% in a couple of isolated areas under extreme conditions.....I could live with that..... but it just wouldn't have that same dramatic headline grabbing impact would it?

 

[handyandy]

15% vacancy

Hi All

I wonder whether this article is refering to the decline of the baby boomers which with the declining birth rate will have an affect on the population and as a result on the demand for property.

If you get a book " the roaring 20's" $5 in a discount store this is based around this concept and has a lot of statistics in it to support the argument.

The book is based on USA stats with some revised additions having relevant Aus data. It indicates that in the USA the baby boomers die off will commence in 2020 when those born in 1945 will reach the age of 75 etc

The vacancy factor increases towards the end of a boom due to the supply (new buildings) exceeding the demand due to builders continuing to build. If you then have a contraction in demand due to less people then you have the same criteria excess supply and because its not builders that are then going broke it will be investors who are over geared and can't take the vacancy factor. This would then lead to excess supply but in this case not of new homes but of existing stock.

Don't get me wrong as I am heavily involved in the residential property market but to simply say it can never happen could be putting your head in the sand.

Cheers

 

[Rolf Latham]

Hi Allan

For the average neagtive geared investor it wont matter whether the vacancy rate is 0 or 15 %.

Using the Somer's own excellent PIA software you would see that for an average 300 000 new IP owned by an investor on more than 60 000 a year income the holding cost at 0 % vacancy is 72 per week.

At 15 % its $ 93 per week so possibly no big deal.

If a 15 % vacancy rate forces you to sell, you should not have been in that investment in the first place - just my view

Ta

Rolf

 

[Alan H]

Good point Rulf.....

 

[suggo]

So what is considered a 'long' period of vacancy?

1 month? 3 or maybe 6months? A year?

I'm a little(only a little, I have wet feet) new to IP's so am just trying to get the feel for things!

 

[Alan H]

Suggo,

Personally, when I've done any cashflow figures for a puchase I've normally allowed a couple of weeks a year vacancy as standard but this will vary depending on a number of factors.

What's considered a 'long' vacancy will usually depend on the type of property and the resultant cashflow. eg. you may have a holiday letting type property that is quite comfortable with a couple of months vacancy because of the good returns you receive during peak and shoulder seasons. On the other hand, with a different type of property, a couple of months may really hurt.

Rolf raised a good point in that your 'loss' will be buffered somewhat by the increased deductibility of perhaps a bigger loss from reduced rental, and if spread out over a year it may not be that much per week.

BUT, Sims point is equally valid. Many first time/new property investors will freak if their property was vacant for months at a time and will literally want out. Why? Not because as Rolf mentioned, over a full year and taking into account tax deductions it will only cost them an additional $20-$30/week, but because it WILL cost them $220-$250 THIS week and the week after.......and the week after......until they get the new tenant.

CASHFLOW is the important thing here.........and if you don't set yourself up to address issues such as unexpected/extended vacancy you can make a relatively minor situation turn bad very quickly.

 

[Sim]

I think you've got it Alan - it's not the relatively small difference in holding cost that Rolf mentioned - only the people who understand the figures, and are in it for the tax breaks no matter what, who will cope with that.

For the rest of the "novice" investors, it will be psychological torture to think that their investment property is vacant - it's just too difficult to deal with. I have many friends who have been in this situation, either they had an extended vacancy period, or they had a problem tenant, or a tenant who did a runner... and pretty much all of them no longer have that investment property.

I can see that over the next 6-18 months, there will be more and more properties on the market which will from first time investors who can no longer cope with the stress of it all.

 

[suggo]

Thanks for the answers guys. I feel pretty happy because I consider myself not a 'novice' investor! We bought our first investment property October last year (now have three) and we had a vacancy of 3 months (not happy with that but what can you do!) Wasn't fun but I was happy that we had bought a good property and I had done my sums correctly. We coped just fine with the vacancy and am glad to report that new people moved in on Friday
I have found this forum and Jan Somers books of great help and will continue to learn and prosper! Thanks everyone!

 

[Donna L]

Apartment rentals

I have had a look at Harry Dent's most interesting book "The Roaring 2000s". His premise is that economic cycles are entirely predictable up to 5 decades ahead by looking at the birth rate and when the prime spending years (45-55) which can drive the economy is due to come up. It is quite extraordinary. This book was written in 1995 and the American birth rates are similar to Australian birth rates except that we didn't have nearly the fall off that the Americans had after 1961. In 1995 he was predicting that the worse time in America for rentals would be 2000-2003. Australia is somewhat similar but recovers more quickly. Based on his premise, Australian rentals should be rising steadily from late 2004 as the echo baby boomers hit the rental market (20-25 year olds). By the way, the Japan birth figures are very interesting. Japan will have its prime spenders moving in from 2005 to 2020. In 1995, he was predicting a very bearish market in Japan for ten years. (They took big hits to birth rate in post-war rebuilding). It's a great read. I recommend it to all.

Donna L.