“The outlook appears less rosy for Melbourne’s property investor market, with the latest rental vacancy figures from SQM Research showing the Melbourne vacancy rate rising to 4.4% in December with more than 16,000 properties now available for rent – up from 3.4% and 12,300 vacant rental properties in November 2011.
Melbourne’s vacancy rate is more than twice that of Sydney (2%) and significantly higher than the national vacancy rate of 2.5%.” Larry Schlesinger – MSN Property
The question needs to be asked, “Why is Melbourne’s vacancy rate significantly higher than the rest of the capital cities?” The answer is very simple; the building boom is going gang-busters in the Melbourne market, particularly in the newer Western and Northern suburbs, and is attracting savvy investors from all around the country.
Those investors know all too well that their returns will follow a parabolic curve. First there is the initial leasing (if they are into the market early, in a newly developed area) where they will achieve the maximum rent at that time. Then when re-leasing, properties will compete with an ever increasing number of newly completed properties. This will be followed by the supply exceeding demand, making it more difficult to lease, forcing rentals to meet the market, normally with zero increase, and in some situations a reduction in rent.
Professional investors ride this curve, confident that over a period of time new building in the area will have reduced significantly, and there will be fewer rental properties on the market. This allows the true rent of the property to be reflected, as the demand remains at the same level, but the supply is reduced.
My advice to all investors in developing suburbs; be prepared for a fluctuation in the rent levels, both up and down for the first 2 to 3 years of ownership.
Melbourne’s vacancy rate is more than twice that of Sydney (2%) and significantly higher than the national vacancy rate of 2.5%.” Larry Schlesinger – MSN Property
The question needs to be asked, “Why is Melbourne’s vacancy rate significantly higher than the rest of the capital cities?” The answer is very simple; the building boom is going gang-busters in the Melbourne market, particularly in the newer Western and Northern suburbs, and is attracting savvy investors from all around the country.
Those investors know all too well that their returns will follow a parabolic curve. First there is the initial leasing (if they are into the market early, in a newly developed area) where they will achieve the maximum rent at that time. Then when re-leasing, properties will compete with an ever increasing number of newly completed properties. This will be followed by the supply exceeding demand, making it more difficult to lease, forcing rentals to meet the market, normally with zero increase, and in some situations a reduction in rent.
Professional investors ride this curve, confident that over a period of time new building in the area will have reduced significantly, and there will be fewer rental properties on the market. This allows the true rent of the property to be reflected, as the demand remains at the same level, but the supply is reduced.
My advice to all investors in developing suburbs; be prepared for a fluctuation in the rent levels, both up and down for the first 2 to 3 years of ownership.
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