The rise of the For Lease signboard: Edwin Almeida

Property investors have been pampered with an assortment of developments throughout Sydney over the last three years. Developments that have seen in the most part vacancy rates as low as 1.2%. 

Adding to the investors fortune are almost no-vacancy periods. High capital growth and low vacancy is an investors dream but how long will and can the party last? 

As I drive around Sydney in general and meet with clients in coffee shops, I have been noticing the emergence of the For Lease signboard. In some apartment buildings there are two, even three signboards adorning their front landscape. A sight not witnessed for some time.

As many investors have been feasting on the high property yields, many may drop their guard with respect to the upcoming oversupply and less demand for rental property. Current reports are now emerging with vacancy rate figures on the rise.

With the rise in vacancy periods comes the upsurge of the For Lease signboard - a symbol that should bring terror to the property investor. I am of the opinion that these signboards will grow in numbers, as they pop up like mushrooms in the front yards of older buildings. Tenants will migrate from the older apartment blocks to those newly built. 

There are other reports floating around that we have 90,000 off-the-plan purchases yet to be completed over the following 12 months. Again, I’m of the opinion the numbers quoted by the mainstream are conservative figures. It will be no surprise to finally calculate 130,000 plus apartments being built in the capital cities along the east coast of Australia. 

But wait! There is a hell of a lot more in planning and proposal stages. When I say a lot, I don’t just mean tens of thousands; let us just say that the Parramatta Rd corridor will see close to 100,000, if not more. 

What will set the trend for 2016 will be how quickly the tens of thousands of apartments will be occupied as they are completed in the following there to four months and what rental-incomes or returns are achieved. But not taking into account the rental guarantees promised by agents and developers.  

What I foresee will take place in the near future:

• We will witness a migration of tenants from older unit blocks, to newly completed unit blocks. 
• Rents will be reduced to those promised to investors. However, although tenants will pay much less, the agents and developers will make up the difference. Happy-days for the renters. 
• Rental expectations will be adjusted even lower in the older apartment blocks to counter-act the mass exodus of tenants vacating the older dwellings.
• Unit blocks that are 3 years and older will begin to creep down in value in some parts of Sydney and in others it will be a sudden drop.  

Why is this all important? 

If you are an investor and you believe you may be in an area where there is a high level of construction, then it’s time you begin to lock your tenants into a long term tenancy period. Perhaps even drop the rent a little to gain long term peace of mind. 

A vacancy-plan strategy will need to be put in place with your property management team - a plan that monitors both rental demand and vacancy periods in the area. 

Furthermore, right now is not the time to be looking at increasing rents in most parts of Sydney. There are only a few areas in Sydney that are coping with rental increases. With a smorgasbord of rental property available and more to come, tenants will move to newer and cheaper accommodation. 

What's the net result?

The net result for many that moved into the property investment game in the last 18 months will be very painful. Needless to say, a large number of investors that have borrowed equity against established dwellings to grow their property-portfolio will also find the near future somewhat turbulent. 

EDWIN ALMEIDA is licensee in charge of Just Think Real Estate.

He is also the creator of Oz Real Estate.TV and a presenter for propertyinvestingvault.com.