Certainty the key to relieving tight rental market

Industry head says drastically low rental vacancy rates may loosen with greater market certainty

THE latest REIV rental vacancy figures for August show slight improvement in regional Victoria and are relatively steady in metropolitan Melbourne.

The average vacancy rate in metropolitan Melbourne in August was 2.1 per cent, with regional Victoria’s vacancy rate at 1.5 per cent – up from 1.3 per cent in June and 1.4 per cent in July, suggesting improving investor confidence.

“Across Victoria, vacancy rates are generally below the 3.0 per cent vacancy threshold. Results of 3.0 per cent and above are considered to indicate a healthy rental market,” said Real Estate Institute of Victoria Chief Executive Officer, Gil King.

“In August, only two regions in Victoria exceeded this level – the Mornington Peninsula, at 3.1 per cent, and middle Melbourne, at 3.2 per cent, but the trend in many areas including the Mornington Peninsula and Middle Melbourne is downward.”

Mildura and the Mallee (0.9 per cent vacancy rate), Bendigo and Loddon (1.1 per cent) Warrnambool and Western District (1.2 per cent), the Wimmera (1.4 per cent), inner Melbourne 0-4km from the CBD and Ballarat and Central Highlands (1.6 per cent each) and outer Melbourne 20+km from the CBD (1.7 per cent) were among the tightest rental markets in August.

“Vacancy rates at this extremely low level create an incredibly tight rental market and demand is extremely high,” Mr King said. “For renters, always do your research and be optimistic, just because 10 people attend an open for inspection, that doesn’t mean they will all apply for the property. On the flip side, in many areas of Victoria there are plenty of opportunities for investors.”

Mr King said small-scale investors own 83 per cent of Australian investment properties, and they face many costs including mortgage payments, insurance fees, maintenance costs, property management fees and taxes.

“We need a fair and workable regulatory and tax environment to stimulate that investor activity,” he said.

“Most investors are mums and dads, young people trying to get a foothold into the market or those planning to help fund their retirement with a modest property portfolio.

“If the costs of maintaining a rental property outweigh the income generated from rent, investors will look to invest their money elsewhere.”

Factors including a market correction, possible changes to negative gearing (since resolved by the Federal election result), tighter bank lending standards and changes to Victoria’s Residential Tenancies Act have stifled investor confidence.

“Given recent interest rate cuts, APRA guidance to loosen lending standards and greater stability following the Federal Election, the REIV hopes to see an upturn in investor activity during the last months of 2019,” Mr King said.