- SQM Research has reported that rental vacancy rates in Sydney have reached their lowest point since 2011
- CoreLogic data reveals that property values have fallen 13.9% in the past year to mid-February
- Herron Todd White NSW Director highlights that the biggest barrier to investment is the cost of finance
The tight rental market is being felt across Australia, and NSW is no exception; Herron Todd White‘s latest Month in Review report reveals increasing immigration levels mean there is little reprieve ahead.
SQM Research has reported that rental vacancy rates in Sydney have reached their lowest point since 2011, recording a rate of only 1.3% in January.
Sydney rental vacancy rates
Herron Todd White NSW & ACT Director Shaun Thomas highlighted that Sydney’s current vacancy rates are a significant drop from 2.3% in January 2022 and 3.5% in January 2021.
“With increasing immigration levels along with increasing numbers of international students arriving in Sydney, this rental squeeze is likely to get even tighter over the course of this year,” he said.
Changing cash rate
The pandemic-induced ultra-low cash rate saw investors turn to residential property for greater capital returns over the past few years.
“The wider Sydney property market was resilient during the global pandemic and for many local investors, the security of bricks and mortar as an investment is a familiar and often the first go-to strategy,” Thomas said.
More recently, the economy is feeling the effects of the tenth consecutive interest rate rise that pushed the rate up to 3.6%. This has driven mortgage rates up even higher.
“Now that the cash rate has jumped…residential property values have fallen across the Sydney market.”
Shaun Thomas, Herron Todd White NSW & ACT Director
CoreLogic data reveals that property values have fallen 13.9% in the past year to mid-February.
Meanwhile, as the vacancy rates continue to tighten, there has been a rapid increase in weekly asking rents.
SQM Research data shows that in the past 12 months, there has been a significant increase in weekly rent for both houses and units, with a rise of 19.3% and 24.3% respectively.
Sydney weekly asking rents
These factors have meant a rapid improvement in gross yields as investors shift focus from capital returns to income returns.
As a result of these trends, there has been a significant improvement in gross yields, as investors shift their focus from capital returns to income returns.
For the first time since 2016, gross rental yields for units have exceeded 4%, while houses are currently at 2.8%, marking the highest point since August 2019, according to data from SQM Research.
Sydney rental yield
“With supply of new properties having declined over the past few years and demand likely to continue to increase, all the indicators suggest that property investors with an eye to income returns are likely to be attracted to the market in 2023, particularly as prices begin to bottom out in the second half of the year.”
“The biggest barrier of course is the cost of finance, with the increasing interest rates over the past 12 months significantly outstripping the improvement in rental yields.”
