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Chronic Oversupply: Landlords hit by apartment glut and falling rental yields; Without rental growth or capital growth, the prospects for many investors are bleak
Topic Started: 21 Aug 2014, 10:18 PM (10,342 Views)
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Landlords hit by glut of apartments

Jason Plevras paid $600,000 for a two-bedroom apartment in Melbourne’s Southbank last May. The off-plan unit was one of 237 in the 15-storey Sunday Apartments on ­Coventry Street that went on the market around the same time.

The real estate agent assured him he would have no trouble finding a tenant, Plevras says. “I remember when I was signing the contract to buy, I made clear that I was worried we won’t be able to rent it,” the 33 year old says.

“They said ‘renting will never be a problem. You’ll always have tenants’.”

He waited three months before ­advertising the unit. His starting price was $600 a week, but that went down to $525 before it rented. It’s been a “yo-yo” of tenants coming and going ever since, Plevras says.

“Because it’s so competitive, we’re almost putting anyone we can in.”

For Plevras, the news is not good. The pressure on prices will only grow as more stock comes to the market. Weekly ­advertised rents have fallen 3.6 per cent in Docklands and 6.4 per cent in ­Southbank over the past 12 months while they have stayed still in the central business district, RP Data figures show. Over the past five years, rents in Docklands have fallen 8.6 per cent.

In Sydney, Hugh Eriksson tells a similar story.

The marketing executive, who owns a townhouse in Neutral Bay, says he has bent over backwards to keep rents near to stable and has even allowed pets.

“There might be low vacancy in the inner city but renters are still in a position where they can choose,” he says.

Sydney’s competitive rental market means rental returns at Eriksson’s townhouse have averaged below 3 per cent a year and a new property he is looking at in Balmain in Sydney’s inner-west is likely to generate only enough rent to cover his costs.

In Melbourne, the New York-style incentives that have started to creep into the soft market, such as offering the first month rent-free, will grow as investors and their agents seek to draw tenants into ­dwellings without affecting all the other rents in the same building, says buyers’ advocate Paul Osborne.

“Investors will be caught in a very ­competitive market needing to offer ­pricing discounts to lure tenants,” he says.

Central Melbourne has over 17,000 new apartments in the pipeline and 5260 are under ­consideration for development approval, the city disclosed last week when it passed a resolution asking Planning ­Minister Matthew Guy to impose a ­$900-per-apartment levy.

“There’s chronic oversupply,” say Margaret Lomas, a founder of property consultancy Destiny. “There’s an ­increasing demand for inner-city living, but the supply is going much faster than that demand.”

Without rental growth or capital growth, the prospects for many investors are bleak, Lomas says. “What normally comes next after this, as those people become more and more distressed financially, they begin to need to sell as well.

Melbourne

A weaker rental market may just do for Melbourne’s apartment market what the city’s architects have been lobbying for: stricter design and size standards.

Even when rental prices are falling, people will pay for good-quality dwellings, buyers agent Paul Osborne said.

Sydney

While Sydney has enjoyed the most buoyant market in the country in the past year, rising prices have caused rental yields to cool.

APM research showed gross yields fell 4.6 per cent in the 12 months to June, and 5.6 per cent for units.

Brisbane

Brisbane was the only eastern capital city where apartment yields dropped over the last quarter as higher prices offset falling rents.

A large value gap between Brisbane and Sydney and Melbourne is being exploited resulting in rising prices. The yields on Brisbane units and houses were still the highest of the eastern capital cities at 5.27 per cent and 5.04 per cent respectively, according to Fairfax’s Australian Property Monitors.

However, the fundamentals behind the investment have just started to show signs of weakening, with the median asking rents for units­ dropping 1.4 per cent in the June ­quarter to $365 and house rents ­showing no growth at all.

Perth

Perth rents recorded some of the ­biggest rent cuts in the country during the past year, as a period of rapid rent increases came to an abrupt end and new apartment and housing stock started hitting the market.

The trend is expected to continue, particularly among inner-city units, as apartment projects commissioned ­during the resources boom period are completed and negotiating power shifts to buyers.

Australian Property Monitors research showed asking rents for houses and units in Perth fell 6.6 per cent and 5.9 per cent, respectively. The only other state or territory capital to suffer a similar-sized cut is Canberra.

Read more: http://www.afr.com/p/business/property/landlords_hit_by_glut_of_apartments_TyeuZS5jx2nrxr0Yo1MxaI
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Falling rental yields point to price pressure

A softening residential rental market will drive yields down further and could be the canary in the coal mine of a coming correction in property prices, analysts say.

Latest figures from Fairfax-owned Australian Property Monitors show gross yields fell in Perth and Canberra as rents tumbled. Yields have also fallen in Sydney, Melbourne and Brisbane…

Housing analysts SQM Research and BIS Shrapnel expect rents and rental yields to continue to soften across most markets in 2015 and beyond with vacancies rising amid a rush of new housing flowing onto the market…

Property investment advisor Andrew Crossley said most of his client’s strategies were to “buy and hold” and wait for capital growth – rather than rental income – to generate wealth.

Read more: http://www.afr.com/p/business/property/falling_rental_yields_point_to_price_3A2FUJpe74k5W4T1ha2FzI
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Jimbo
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"The real estate agent assured him he would have no trouble finding a tenant"

:lol
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Elastic
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Jimbo
21 Aug 2014, 10:59 PM
"The real estate agent assured him he would have no trouble finding a tenant"

:lol
He gave him a pat on the shoulder, told him not to worry and to sign right here.
Last seen burning off in his leased BMW.
Only a rat can win a rat race.

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Jimbo
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Elastic
21 Aug 2014, 11:19 PM
He gave him a pat on the shoulder, told him not to worry and to sign right here.
Last seen burning off in his leased BMW.
He'll be OK. He can sell that curved screen TV and Thermomix he bought for his boat.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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miw
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If he read APF - or in fact undertook the most cursory of due diligence - he would have known that 5.2% gross yield on an OTP unit in Melbourne was not achievable.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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Jimbo
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miw
21 Aug 2014, 11:38 PM
If he read APF - or in fact undertook the most cursory of due diligence - he would have known that 5.2% gross yield on an OTP unit in Melbourne was not achievable.
But the real estate guy told him he would have no problem? Are you saying the RE guy got it wrong?
Whatever next?
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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miw
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Jimbo
21 Aug 2014, 11:50 PM
But the real estate guy told him he would have no problem? Are you saying the RE guy got it wrong?
Whatever next?
So I take it you believe whatever salesmen tell you?
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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Elastic
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miw
21 Aug 2014, 11:38 PM
If he read APF - or in fact undertook the most cursory of due diligence - he would have known that 5.2% gross yield on an OTP unit in Melbourne was not achievable.
On the sucker scale he was definitely somewhere at the top end but it's surprising how naive many property investors are.
Most people do not receive a sound financial education and I include myself in that category.
Thus they rely on advice from parents, their accountant or some snake oil merchant who saw them coming a mile off.
The vast majority of people do not work in finance or accounting and even then it's no guarantee you won't get scammed.

The woman who looks after the finances at work is in her 60's.
A couple of years ago she told me about an email she received telling her she had won some lottery.
I asked her if she entered the lottery. She said no and I told her it is a common phishing scam and just ignore it.
But what if it is real she asks me. I really had to emphasise the point but it wouldn't surprise me if she followed it up.
I heard recently she paid $3000 for two rugs while visiting Turkey.
People are gullible. They hear what they want to hear.
Only a rat can win a rat race.

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Jimbo
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miw
21 Aug 2014, 11:57 PM
So I take it you believe whatever salesmen tell you?
Got these coming in the post. I can't wait.

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Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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