Why Melbourne City rentals are so cheap - and why it's never a better time to be a renter

Why Melbourne City rentals are so cheap - and why it's never a better time to be a renter
Urban EditorialMay 28, 2020

Never in the 12 years as Managing Director of Xynergy Realty have I seen this many empty apartments in Melbourne. The lack of international and domestic tourists along with the reduction of international and interstate students living in the city whilst studying at Melbourne universities has caused inner-city apartment rents to plummet.

This has been the biggest decline in overseas tourists in Melbourne's history. Since I have been in Australia I’ve seen the Victorian government invest millions of dollars in tourism, growing the number of international tourists from 5 million in 2009 to 8.5 million in 2019 with the government planning to grow this to 15 million by 2026. Out of the 8.5 million tourists that come to Victoria every year, 3 million of them visit Melbourne as well as 10.8 million domestic tourists.

The real estate market has changed because of this. Due to the increased demand for short term accommodation, landlords can now rent out their apartments as AirBnBs. While this is riskier in terms of consistent cash flow, most investors see greater rental returns in such short-term rentals compared to leasing out long term for 12-months. Some buildings in suburbs like Melbourne CBD, Docklands and Southbank have close to 20% of buildings being used as short term accommodations and AirBnBs. This has helped accommodate the increase of tourists in our city.

However, these short-term operators have now become a double-edge sword to many landlords. Most residential buildings in the CBD are not built to cater to commercial activities that short-term accommodation operators present to the buildings’ facilities and amenities. Most of these operators are signing Residential Tenancy Agreements instead of Commercial Tenancy Agreements. Hence, landlords and other owners in the buildings have to cope with significantly higher maintenance costs that are built in their Owner Corporation’s levies and all other outgoings attached to the properties. Given the COVID-19 pandemic situation, the units that are leased out to short-term accommodation operators are the worst performers, since many of these operators are now completely unable to pay rent.

Over the years, students have made up a significantly large portion of tenants in Melbourne's CBD. Most of the students that choose to come to Melbourne come from large cities and they are perfectly fine with that style of living and because some of our largest universities like Melbourne Uni and RMIT are in the CBD, so students will much prefer to live close to Uni and benefit from all the conveniences of CBD living. The Australian Bureau of Statistics showed that only 307,500 foreign students entered the country in March 2020, a drop of 60% the lowest it's been since I came to Melbourne as a student in 1994.

Our nation's vacancy rate usually sits just below 2%. Now in April, it has risen to 2.6%, the highest it's been since the Global Financial Crisis in August 2009. According to figures from the Melbourne City Council, the rental vacancy rate in the CBD and surrounding areas has nearly tripled since last April from 1.9 percent to 5.4 percent, reaching its highest point in more than a decade.

A concern for a lot of landlords if they are unable to rent out their property in 6 months is that they might be hit with the Vacancy Tax, which was originally proposed for landlords who deliberately left their apartments empty. This is obviously not the case now and the tax should be abolished over this period of time.

In summary, with the shrinking number of short term accommodation and a drop in international students, there are plenty of empty apartments now competing for tenants. We have seen landlords give huge discounts on rents just to lease out their property. This is great news if you are a tenant looking for an apartment in the city.

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