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Tightest rental market in 21 years

The rental vacancy rate in NSW fell to 1.0 per cent in May, close to the lowest levels in 21 years. Despite anecdotal evidence of softer demand for rental properties, Sydney rents rose on average by 32 per cent over the past three years.

What do the figures show and what does it mean?

The latest data shows that NSW rental markets remain tight. In Sydney, the vacancy rate fell from 1.5 per cent to 1.0 per cent in May – marginally above the record low set in March 1987. The Real Estate Institute indicates that vacancy rates stood at 1.7 per cent in the Hunter, 1.6 per cent in the Illawarra and 1.6 per cent in the Central Coast. Of the other regions, vacancy rates remain tight in all areas except Coffs Harbour (3.3 per cent) and the South Coast (3.5 per cent). Supply and demand are regarded in balance when the vacancy rate is around 2.5-3.0 per cent.

While there is more anecdotal evidence of tenants turning to property ownership and rent levels softening, it is yet to show up in the hard data. In NSW, dwelling commencements are hovering around the lowest levels in almost 50 years. But at the same time, population growth has been accelerating. Currently the NSW population is growing at a 1.4 per cent annual rate – the fastest rate in 20 years – and up from 0.5 per cent just four years ago.

While the NSW Government is to be applauded for cutting stamp duty by 50 per cent on new dwellings under $600,000, it now needs to get investors interested by actively promoting the incentive. State and Federal Governments may also need to explore with banks other measures to boost development and investment activity.

While home prices are now rising and interest rates are low, investors and developers still face hurdles to advance new projects. More conservative lending practices now require a higher level of buyer pre-commitments before projects get off the ground.Measures to boost home building are not only important to drive economic activity, but also to keep a lid on property prices, rents and overall inflation, as well as to meet the needs of a growing population.

The latest national figures showed that all capital cities had vacancy rates below 2.5 per cent in the December quarter. And in the March quarter rents nationally were up 8.1 per cent on a year ago – near the fastest rate in 20 years. According to NSW Housing, rents have risen by 32 per cent across Sydney in the past three years.


Published on: Thursday, July 16, 2009

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