Landlords pay the price

Published on 14/03/2013

If you've been putting off replacing the kitchen or installing an airconditioner in an investment property, now might be the time to take stock of your competitive position. Rental prices in Melbourne and regional Victoria are stabilising, and rents could soon fall in some areas, as vacancy rates across the state continue to blow out.


The median weekly rent for a house in Melbourne increased slightly to $390 during February, while regional Victorian rents stabilised at $300, according to the Real Estate Institute of Victoria.


But the REIV data reveals a troublesome trend for landlords. The vacancy rate in Melbourne is on the up, going from 2.2 per cent in November to 3 per cent in February. Although part of this increase is due to the normal new-year tenant changeover period, the trend to higher vacancies is strong and constant.


Data collected by analyst group SQM Research reveals an even deeper malaise. SQM says its data shows Victoria tipped over the 3 per cent ''equilibrium'' for rental vacancies in November, when Melbourne had 13,411 vacancies. SQM considers 3 per cent to be a balanced market between landlord and renter interests.



Once vacancies shoot above this level, tenants are much better placed to negotiate terms. But a big city's rental market can consist of dozens of micro-markets.


SQM managing director Louis Christopher says Melbourne has clear pockets of oversupply and of undersupply. ''There are markets within markets, and local conditions are set to dominate rental conditions in 2013,'' he says.


The REIV reports the highest level of vacancies are in the middle suburbs (10 kilometres to 20 kilometres from the city centre).


It's different in the inner-city. The head of buyer's advocacy company Secret Agent, Paul Osborne, says strong demand for one-bedroom apartments in 2012 led to rent increases in many inner suburbs. The exception was Melbourne city and Docklands, which have a large supply of units. In those areas, rent growth was marginally ahead of inflation.


By contrast, rents in Albert Park and Middle Park grew substantially. Three-bedroom houses in these suburbs now attract a median rent of $800 a week, according to Victoria's Office of Housing.


Osborne says three-bedroom houses in the inner suburbs are garnering solid price increases - a trend also seen by estate agent Biggin & Scott.


KPI's Melissa Opie says tenants have become fussier as rents have risen. She says landlords need to be ready to spend on upgrades when tenants go on holiday or vacate.


''These days airconditioning is not considered to be a luxury - it's a necessity,'' she says. ''A lot of tenants also want a dishwasher.''

Chris Tolhurst

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