High vacancy rates are hammering the Sydney rental market – but there is still plenty of opportunity to be found in the rest of New South Wales, according to a leading Sydney buyer’s agent.
While inner city locations have taken a hit because of the lack of inward migration from international students and outward migration from tree changers, other parts of the state are experiencing huge rental growth as a result of those same people moving out of the city.
“There’s been a lot of hype and headlines around significant vacancy rates since COVID last year,” said Ben Plohl, founder and principal at Sydney buyer’s agency BFP Property Buyers.
“And that’s right to a certain degree: predominantly in mid to high density markets in Sydney and other major cities that have had some impact on vacancy rates.”
“As a result, rents have been smashed. But it’s not a complete picture when you look at other locations, whether it be the Sydney housing market or locations outside Sydney. What we’ve seen is that the housing market has held up a lot stronger than the unit market.”
There has been a strong trend out of the cities, and for houses with more space above units with small square footage. On top of that, home working has freed up many city residents to move to more regional areas.
Rents on the South Coast have gone up over 22% in the last year, while on the Central Coast, they have risen 19.5%.
“In some pockets of Sydney, many parts of the Central Coast and Newcastle and a few parts of Wollongong, rents have significantly grown,” said Plohl. “It comes down to the large rental crisis in these markets.”
“For some of our clients, especially outside of Sydney and in the housing market not units, we’ve seen a big increase in asking rents and also we’ve seen many instances where prospective tenants have paid well above asking rents.”
“For instance, a property that is listed for $550 a week, we get applications at $570 and even up to $590.”
“I’ve had instances in my personal portfolio – the last was up in the north of Brisbane: we listed for $360 and ended up renting for $390. It’s definitely happening across the board in many markets. That’s what we’re seeing at the coalface.”
This is contributing to what has been described as the “two Australias”, where some are permanently priced out of buying but also live in areas where renting is increasingly unaffordable.
“There’s been a few instances where, in some markets, it is becoming cheaper to buy than to rent,” said Plohl. “We’ve seen that in a bunch of different locations.”
“The deposit a big thing that is holding people back. If you’re in Sydney, where the median price is $1.3 million or thereabouts, needing even a 10% deposit is $130,000, or a 20% is $260,000. Who has that funding lying around?”
“It’s very challenging. They might be able to afford the mortgage repayments, but they can’t come up with those numbers. That’s something that’s very common and that we are seeing in Sydney.”
Clients are getting around this by staying in the cities to live, but buying elsewhere, a phenomenon known as ‘rentvesting’.
“Then it comes back to lots of people, lots of our clients, who are looking at the rentvesting strategy,” explains Plohl.
“They work in Sydney and they like it there, so they don’t necessarily want to leave and will continue renting, and the deposit that they have won’t buy them a property in Sydney anyway.”
“So let’s go put that into a regional location, whether that’s Central Coast and Newcastle or regional Victoria, New South Wales or up in Brisbane where it’s much more affordable and you can get a good rental return. We’re seeing that strategy increasing in demand considerably.”