The New (2019) Crisis Facing Sydney’s Property Investors
Why it could be more painful than the price falls of the last 2 years
Investing in Sydney has now become very risky for a landlord.
We’re seeing the data right now and Sydney has the highest numbers of vacant properties since 2005.
And that’s before the GFC and it’s only going back to 2005 because 2005 was when we first started tracking vacancy rates in Sydney.
There are currently over 25,000 properties that are vacant.
Rents are falling. We’re seeing investors and landlords having to provide incentives, to provide such things as four weeks free rent as we’ve seen in areas such as Mays Hill.
We’re seeing one weeks free rent.
We’re seeing all sorts of incentives.
We’re seeing rents dropping.
In fact, in Chatswood right now, rents on a two bedroom unit in 2019 have fallen back to where they were in 2011 so even before the entire property boom.
Kellyville and Rouse Hill, the suburbs right now which have the worst vacancy rates in all of Sydney, rents are dropping about 70 dollars a week. So the rent today is about $70 a week less than where it was about a year ago on the same property.
So you need to be really careful.
And the reason I’m saying this is because I see so many people saying, “Niro is now the time to buy in Sydney? Prices have dropped from their peaks in mid-2017. The recent interest rate drops means that the rate of price decline is falling. Yes we know that Sydney will reach its bottom sometime in the next 12 to 18 months. So is now the time to buy?”
And the problem is that even if prices don’t fall, if you are going to struggle to get your property rented and at the prices that you’re still paying in Sydney because Sydney prices are not cheap, you’re going to run into some serious cash flow problems.
So not only do we have a massive oversupply, because they’re still building, there are still lots of cranes in the air but according to the RealEstate.com.au chief economist, not only do we have an oversupply of properties in the unit market, the supply of tenants is actually reducing.
In other words, the available pool of tenants is actually shrinking. Why? Because there are so many people who used to rent in Sydney who now realize that maybe they can’t afford to buy a home in Sydney who are moving interstate, primarily to Queensland.
So you’ve got it bad from both ways.
You’ve got this oversupply from the unit market but the available people who are there to rent is actually shrinking.
So landlords are having to do everything they possibly can in order to get their properties rented.
We’re seeing this in areas also like in Strathfield, Homebush, Blacktown where investors and landlords are really struggling.
So be careful when you’re looking to get an investment property. Yes, you may be able to negotiate a discount right now.
Yes, you might believe that the Sydney market isn’t going to crash and I agree with you but is now the time to enter the market?
You need to be really cautious.
Look at the vacancy rate because if you’ve been following any of my past videos, you know that it doesn’t matter what the story is, it doesn’t matter what you believe about the property, the capital growth potential, the infrastructure, all of that…
If you can’t get your property rented, if you’re going to struggle to find a tenant or you have to reduce your rent, it’s going to really play havoc with your cash flow.
It’s going to hurt your property investing journey.
It’s probably going to minimise your potential because if you’re getting less in rent, it’s going to affect your borrowing capacity to be able to buy future properties.
So you really want to be careful about buying property in a market where the tenants are in control. It’s good for the tenants.
The market always changes.
We’ve had a few years where landlords have been in control but now it’s a tenant market.
Tenants are in control.
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November 13, 2020
November 4, 2020