Melbourne has overtaken Sydney to become the rental market with the highest proportion of vacant properties in Australia, according to new research, as a COVID-19 policy that bans landlords from evicting struggling tenants could be extended.
Melbourne’s vacancy rate edged up by 0.6 percentage points to 3.8 per cent in August, more than double the proportion recorded in the same month last year, Domain Group figures showed. It was also the only capital city that recorded a rise in vacancy rates over the past month.
The vacancy rate increase is due to empty properties in Melbourne shooting up by about 20 per cent in August, and 140 per cent in the past 12 months.
Meanwhile, other capital cities, including Sydney, have managed to keep rental demand up or stable, with the vacancy rates falling in five cities, including Brisbane, Perth, Hobart, Canberra and Darwin.
Sydney’s vacancy rate saw no change at 3.5 per cent, though it is up by 0.5 percentage points in August 2019.
Other capital cities fared better with vacancy rates between 0.6 per cent and 2.2 per cent.
The national vacancy rate in August remained the same for a third month in a row at 2.1 per cent, nearly 2 percentage points lower than that of Melbourne.
Domain Group research analyst Henry Yu said Melbourne’s stage four lockdown, which began on August 2, had “disrupted the rental market”.
“A two-speed vacancy rate has emerged as Melbourne entered its first month of heightened stage four restrictions in early August,” he said.
“Elsewhere, other capitals have avoided secondary lockdowns despite minor outbreaks occurring.”
Victoria extends rental eviction moratorium
The new data comes as the Victorian government moves to extend the moratorium on residential rental evictions and freeze on rental hikes for a second time until March 28, 2021. It was originally slated to end on September 26, but Premier Daniel Andrews extended the moratorium in August until the end of 2020.
While eligible tenants may be able to receive up to $3,000 in rental relief handouts, a bump up from the previous $2,000, landlords may also be able to access a 25 per cent discount to their 2021 land tax. The remainder of the bill may be deferred until the end of November 2021.
“We know there are plenty of Victorians doing it tough right now – the last thing they need to worry about is whether they can keep a roof over their head,” Mr Andrews said in a statement.
“With an extended timeline and expanded eligibility for rental help, it means a little less stress and a little more certainty for tenants.”
But the Real Estate Institute of Victoria (REIV) said extending the moratorium for another six months meant landlords “have virtually no relief” during the ban.
“This demagogue decision to extend the moratorium means that for a whole year, landlords will be dictated to as how much rent they can charge, removing their right to make fundamental decisions about their own property,” REIV chief executive officer Gil King said.
“Property owners who have worked hard to save and invest to provide for the future of their families are not being protected by the moratorium.”
Investors in mortgage stress
Meanwhile, the Australian Banking Association announced today that banks are reaching out to mortgage holders across the country who hit pause on their home loans to discuss when and how they can restart repayments.
A quarter of property investors, or 826,000 borrowers, are in mortgage stress, according to the latest research from Digital Finance Analytics (DFA).
“Clearly the fiscal cliff, which is now legislated, will push more over the edge,” DFA principal Martin North said, adding that he expects to see higher default levels and more forced sales over the next few months.
Rents for Melbourne units declined by 4.4 per cent between March 31 and August 31, CoreLogic data showed, while for houses it dropped by 1 per cent, indicating units may be bearing the brunt of the pandemic’s impact on the rental market.
Tim Lawless, CoreLogic’s head of research, said high levels of apartment supply and falling demand was largely to blame for the weaker rental conditions for the unit market.
“Supply levels for rental grade units have surged over recent years, especially in Sydney and Melbourne, where high-rise unit supply across key inner-city markets has remained substantially above average,” he said.
“At the end of March there remained around 51,000 units under construction across NSW (+19 per cent on the 10-year average), and about 45,000 units were under construction across Victoria (+24 per cent above the decade average).”
Rental demand has been affected by a fall in overseas migration, due to domestic students studying from home, and weak labour market conditions across sectors which predominantly employ renters.
With falling interest rates across the home loan market, financially distressed investors could consider shopping around and potentially refinancing to a lower rate.
The average investor interest rate plummeted from 3.92 per cent in March to 3.47 per cent in September, RateCity data showed.
But the lowest interest rate on the RateCity database for investors is an introductory 1.99 per cent (comparison rate 2.71 per cent) from Loans.com.au. The rate reverts to 2.74 per cent after the one-year introductory period. However, investors will need to bundle the mortgage with their owner-occupier home loan to be eligible for the rate.