Lack of migrants to send rents tumbling in Sydney and Melbourne

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on September 03, 2020
Lack of migrants to send rents tumbling in Sydney and Melbourne

Photo by Nate Watson on Unsplash

Australia's national border closure is set to put serious downward pressure on rental values and listings.

Net overseas migration (NOM) has accounted for 51% of Australia's population growth in the last thirty years, and 60% since late 2016.

CoreLogic Head of Research, Tim Lawless, said population growth had been a long standing driver of economic growth for the country, underpinning residential construction activity and rental demand. 

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. 

Lender
Advertised rate Comparison rate* Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
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Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

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  • No upfront or ongoing fees
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Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
FixedMore details
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Fixed Home Loan 1 year (Principal and Interest) (LVR < 80%)

  • Make up to $20,000 additional repayments per fixed term
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  • Choose to rate lock for 90 days (fee applies)
USE A MARKET LEADING APP TO HELP YOU PAY OFF YOUR LOAN SOONER

Fixed Home Loan 1 year (Principal and Interest) (LVR < 80%)

  • Make up to $20,000 additional repayments per fixed term
  • Redraw available – lets you access any extra loan repayments you’ve made
  • Choose to rate lock for 90 days (fee applies)
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • No application or ongoing fees.
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  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.

Rates correct as of January 21, 2022. View disclaimer.

Mr Lawless said the lack of migrants would see a higher volume of rent listing and falling rent values across key inner city precincts. 

"This phenomenon is already being observed, particularly across inner Sydney and Melbourne," Mr Lawless said.

"Once foreign student arrivals start to normalise, rental demand in these areas may improve.

"In the meantime, investors who own property in these locations are likely to be facing high vacancy rates, lower rents and reduced ability to service their mortgage." 

Mr Lawless said stalled NOM was also likely to see a higher proportion of units settling with a valuation lower than the contract price, again particularly in Sydney and Melbourne. 

"ABS (Australian Bureau of Statistics) building activity data showed there were more than 50,000 units under construction across NSW at the end of March, and just over 45,000 across Victoria," he said.

"A large proportion of these are high-rise projects in inner city locations.

"Many of these yet-to-be completed projects will settle while rental vacancies remain high and rents are falling, which may put downwards pressure on property values." 

Melbourne and Sydney rent listings already spiking sharply 

Last year 84% of all overseas migration flowed into the nation's capitals, with three quarters of those taking up residence in Sydney and Melbourne. 

Mr Lawless said the impact of the sharp fall in overseas of arrival was already being felt, with rental listings doubling in some inner city precincts. 

"Between mid-March and early-August, the number of homes available for rent in Melbourne’s Southbank rose by 117% to reach 1,230 advertised rental listings," he said.

"Rental ads were up 111% across the Sydney CBD/Haymarket/The Rocks region to reach 776 and Melbourne’s CBD saw a 105% lift in advertised rentals taking the total number of homes available to rent to 2,184."

nomrent01

Source: CoreLogic

However, this couldn't all be attributed to declined NOM, with these areas also greatly affected by the rise in unemployment. 

Mr Lawless said the rise in listings was already weighing on rental income, most prominently in units. 

"Every capital city is showing a larger fall in unit rents relative to house rents through the COVID period to-date, with a more significant difference in Melbourne and Sydney where unit rents are down more than 4% since March."

Local migration to increase in importance

Mr Lawless said the low NOM would see organic drivers of housing demand become more important, particularly through interstate and intrastate migration. 

"Internal migration flows are influenced by a range of factors, but local economic and labour market conditions are key draw cards, as well as lifestyle and housing prices," Mr Lawless said.

"There are already signs that major regional centres are benefitting from increased demand as some people look to escape the large cities, taking advantage of remote working opportunities, more affordable housing options and lifestyle considerations."


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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