Coronavirus could see rent prices drop by 10%

Photo by Mitchell Luo on Unsplash

A surge in vacancy rates sparked by the coronavirus pandemic could see rents drop by as much as 10%.

The latest quarterly Domain March 2020 Rent Report showed rents had been rising in Sydney, Melbourne, Adelaide, Perth, Canberra and Hobart in the first three months of the year.

But the rise in median rent prices across most major capital cities in the first half of 2020 could be short-lived as rental listings flood the market due to COVID-19.

With many renters rushing to lower their living costs amid the pandemic, listing volumes for rental properties have soared over the last two weeks of March, which is expected to bring down rent prices.

Capital city	MAR-20 median rent	QoQ growth	YoY growth
Sydney	$530	1.00%	-1.90%
Melbourne	$440	2.30%	0.00%
Brisbane	$410	0.00%	0.00%
Adelaide	$395	1.30%	1.30%
Perth	$375	1.40%	2.70%
Canberra	$580	0.00%	1.80%
Darwin	$480	-3.00%	-4.00%
Hobart	$470	2.20%	4.40%
National	$451	1.20%	0.20%

Source: Domain 

"Most states and territories have seen a lift in rental listings over the second half of March as the coronavirus pandemic impacts short-term rentals and tenant hip pockets due to income reduction or loss of employment," Domain senior research analyst Dr Nicola Powell said.

"Tourism has also plummeted due to social distancing rules and travel restrictions, short-term rental cancellations may mean landlords have to rethink their investment strategy, forcing many to the longer-term rental market."

That, combined with a complete shutdown of our borders means that rent prices could fall by as much as 10% nationally, depending on how long shutdown measures are in place and the wider impact on the economy and house prices.

Some economists are predicting house prices could plummet by up to 30% in Sydney and Melbourne as a result of the fallout from the pandemic. 

SQM Research meanwhile estimated that rental vacancy rates could exceed 3%, dropping rent prices and putting off many would-be property investors.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Sydney

Before the pandemic, Sydney rents were on a high: House rents had risen for the first time in three years while unit rents rose for the first time in two years.

The old supply and demand equation helped, with a drop in investment activity and construction combining with steady population growth helped to tighten the rental market.

But Ms Powell said that a return of short-term holiday rentals to the longer-term rental market and tenants facing financial uncertainty will change that.

"Some landlords have moved property from short-term holiday leases to the long-term rental market during the coronavirus pandemic," she said.

"Some tenants may also opt to reside with family while our lives are impacted by social distancing, job security fears and economic uncertainty. Rental supply is likely to increase further in the coming months, putting tenants in the driver’s seat."

Melbourne

Melbourne rents climbed by 2.3% in the first three months of 2020: Unit rents reached a new high of $430 per week while house rents climbed to $440 a week.

"During this time the influx of new residents from overseas and interstate has placed additional demand on the rental market, which has led to heightened competition for rental accommodation. The outlook looks set to change," Ms Powell said.

"A lift in rental listings over the second half of March could help to provide rent relief for some tenants as the coronavirus pandemic forces many overseas tenants to leave, vacating rental accommodation unexpectedly.

"Meanwhile others vacate rentals as people opt to move in with relatives as they look to lower the cost of living amidst an unstable employment outlook."

Brisbane

The stability of Brisbane's rental market looks to be in strife, with prices expected to dip as foreign residents return home and tenants facing job insecurity cut their losses and move out. 

The city's rent prices had remained at a steady $410 for houses and $385 for units for the past year.

According to the report, tenants have had the longest period of stability in Brisbane with just over five years of steady rent prices.

"However, Brisbane’s vacancy rate has been sliding marginally over the past few years indicating that the extended period of heightened rental supply is tightening," Ms Powell said.

"Under normal circumstances the trend suggests tenants would eventually experience greater competition to secure leases. However, the economic impact of the bushfires and the coronavirus pandemic will be felt across Queensland and particularly the tourism regions.

"Travel restrictions, border closures and social distancing rules have meant tourism is virtually non-existent. This has forced many short-term rental properties to the longer-term rental market in a bid to keep investment cashflow for landlords."

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Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

• The big four banks are: ANZ, CBA, NAB and Westpac
• The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
• The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
• If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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