07 Oct How lower vacancies will impact investors – Louis Christopher
Data released by SQM Research has revealed that the national residential vacancy rate dipped to 2.1% in August, and Sydney’s vacancy rate remained at its highest level in 13 years. Louis Christopher explains what that means for investor returns.
Kevin: We are joined in the show by Louis Christopher from SQM Research. Always love Louis’s statistics, particularly with vacancy rates, because it tells us so much about what’s happening with the market. Data released by Louis and the SQM Research team revealed that the national residential vacancy rate dipped to 2.1% in August, and Sydney’s vacancy rate remained at its highest level in 13 years. Hi Louis. How you doing?
Louis: Hi Kevin. Not too bad, thank you.
Kevin: Yeah, interesting stats there. They do tell us a lot about the sentiment of the market and where it’s headed, doesn’t it?
Louis: It does. Overall it’s telling us that on the rental side of the Australian housing market, it’s a mixed market. As you’ve just pointed out, Sydney is at a 13-year high with its vacancy around 2.8%, and we think that’s going to go high before it peaks. On the other hand, Perth as an example is at 3.7% but it’s trending down. This time last year it was at 4.9%, so we think the rental conditions over in Perth are starting to improve for landlords after what was an extended period of a rental downturn in that market, and then in Brisbane, where we’re recording quite a clear trend downward, so the vacancy rate for Brisbane is now at 2.8%, this time last year was at 3.4%, and we’re also recording falls in the rental vacancy rates in the Brisbane CBD, so the apartment oversupply story in the Brisbane CBD I think’s now coming to an end.
Kevin: Yeah. That Perth figure of 3.7% that you mentioned, that’s still high, although it is trending well.
Louis: It is. With the vacancy rates, there’s two factors here. Yes, the absolute number is important to know, and generally speaking, we’re regarded as a landlord’s market when the vacancy rate’s under 2% and a tenant’s market when it’s over 3%, but it’s also the relative direction, which way vacancy rates have been trending, so rents can tighten when, say for example, you’ve got an area that’s going from a vacancy rate of 7%, sort of what we had in the mining towns a couple years back, down to say 4%. In that instance, I can guarantee your rents will actually rise, because rents effectively take into account the rental conditions at the time.
Kevin: Yeah. Just to keep it in perspective, too, just to show us how much of a powerhouse that Sydney market is, I’m looking at your figures now. The vacancies are up around almost 20,000 vacant properties.
Louis: That’s right. And we were just under 13,000 a year ago.
Kevin: Yeah, and that compared to say the Australia-wide stat of 70,000 shows you how huge that market is.
Speaker 2: Well, yes. That is correct. Something we need to be watchful of, you have Sydney, you have Melbourne, and they are Australia’s two largest capital cities. They don’t represent the whole nation, but they can have an influence upon the nation’s economy when things go bad, and not that Sydney’s going bad. The local economy in Sydney is still strong, but clearly there is a housing downturn occurring in Sydney, and there are ramifications for that.
Kevin: Just quickly adding up some sums here, almost 50% of the total vacancies Australia-wide are in Sydney and Melbourne, if you add the two figures together, about 10,000 out of Melbourne and almost 20,000 our of Sydney.
Louis: Yeah. That is exactly right, and look, Melbourne and Sydney are of course the country’s two biggest capital citie, with got each city now basically having about five million people each, so you’ve got to expect that in terms of the absolute counts, a high number of vacancies. As mentioned, those two cities have quite an influence upon the national economy, so yes, there is a downturn occurring. Policymakers and regulators need to watch this downturn. The property markets are vulnerable now, and what I would not want to see is policy which puts a market further into correction, and policy makers need to be careful. They’re slowing the market. I read an RBA piece, that says this downturn has been managed well, well, it’s not over yet in terms of the downturn, and if they were to make any policy mistakes, then that could be bad news for the economy overall.
Kevin: Yeah, it’s a bit like a fast-moving train. You get a train that’s going full-speed in one direction. To even slow it down sometimes is really hard, but to turn around in another direction is next to impossible. They move quickly.
Louis: I think that’s right. I must say, as an analyst’s that been watching the market over many years now, one thing I’m concerned about is how things need to be managed. Cycles need to be managed. And when we say managed, It’s through policy initiatives, and that policy initiative is done by relatively few people, and so there is a bit of a power concentration going to very few people in this country who have a lot of control over the economy. I do not like seeing that, I must say.
Kevin: Louis, great talking to you, mate. It always make a lot of sense. Louis Christopher, great website. Sqmresearch.com.au. Some great papers there, and a man we always follow. Louis, thanks for your time, mate.
Louis: Thank you, Kevin.