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Inner-city rental markets stabilising in Sydney and Melbourne as restrictions ease

Sydney and Melbourne’s inner-city rental markets are starting to recover after months of falling rents and surging vacancies due to closed international borders and restrictions hitting CBDs.

In the year to March 31, capital city apartment rents fell 3.8 per cent while house rents rose 5.2 per cent, CoreLogic data released this week shows. But the property data company’s head of research, Tim Lawless, said Melbourne and Sydney’s apartment markets, which were among the hardest hit by COVID-19 border closures, had started to stabilise.

Major city CBDs were left empty during the height of the pandemic and apartment vacancies surged.

Major city CBDs were left empty during the height of the pandemic and apartment vacancies surged.Credit:Wayne Taylor

“Sydney unit rents have posted a subtle rise over the past three months, while unit rents in Melbourne have held firm over the same period,” Mr Lawless said. Rental deferrals for struggling tenants who lost work during the coronavirus pandemic started to end this year.

“The improvement comes after a long-running decline, however, a material improvement in rental conditions is likely to be dependent on foreign students and visitors returning to shore up inner-city unit rental demand,” he said.

Gross rental yields fell to record lows in March, with Sydney at 2.7 per cent and Melbourne at 2.9 per cent, which relates to the holding costs investors face by comparing rental income to the property value. A higher rental yield is usually attractive to property investors. This is the first time on record Melbourne’s yield has fallen below 3 per cent.

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Despite this, Rich Harvey, the chief executive of buyer’s agency Propertybuyer, said some inner-city rental apartments on the fringe of the CBD were being snapped up by investors looking for a cheap entry point into the market.

“They are good value at the moment,” Mr Harvey said. “It’s an opportunity for investors. The COVID tide went out and people went ‘let’s get out of the city’ and that’s created a gap for cheaper units.”

He said rents had been depressed during the pandemic but he expected a lift in future.

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