One of the early warnings signs that the boom is over is the vacancy rates in rental property. The cues are now diminishing and across Sydney the vacancy rates are starting to emerge. In particular, the highly developed areas of Sydney are starting to find a rise in vacancy levels. For example, Kellyville is now experiencing a 7% vacancy rate.

Kellyville was one of the most sought after areas and one of the champions of the latest property boom. The Hills overall were champions in the marketplace. Even though the Hills have no beach, no lake, no mountains, and no natural attractions, it exceeded all expectations. Interestingly enough, the only thing the Hills have is selective schools and Castle Towers. As a side note, Castle Towers has been indicated as the third most visited attraction in school holidays in New South Wales.

This vacancy rate stands to increase with all the new developments coming online in 2018. If we have rental vacancies now, you can throw another couple thousand properties on the rental market shelf. Rental vacancies are set to exceed. This is quite normal at the end of a boom. In 2003, it was 38,000 vacancies across Sydney. Those levels have not been reached at this stage.

Apart from the vacancy rates being concerning and the extra products being brought onto the market, we also have the additional problems of migration into Sydney. People are unlikely to migrate from other parts of Australia into Sydney because of the higher housing and living costs. Furthermore, the Federal Government is doing everything to limit further migration from overseas into the Sydney basin. This all might be good policy, but in all good policies there are often victims. This time the victim may be landlords who have purchased properties and cannot find a tenant.

What I am most interested in will be the change in property management practices.  Whilst there are low vacancy rates, property managers can demonstrate bureaucratic due diligence. They can put hurdles in front of all applicants for rental properties, and be arrogant in the selection process. What happens when there are no cues and no more than 1 application? Will property managers be so arrogant and so complacent in their choice? The liability is the same, but the urgency is different. Will this mean the lowering of selection standards as a means of insuring the investor?

The question is rhetorical. Of course, property managers and landlords will change their positions. The first objective of any landlord is the repayment of their mortgage. If this means taking a risk with a tenant, it must be taken.

The world is changing and this will mean the industry will have to change with it!

 

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538