Australian Rental Property drops to 1% Vacancy

National Australian rental property vacancy rates have hit a record low of just 1% in March 2022 according to recent data released from domain.com.au. According to the research, the record low is due to both the return of international students post-Covid restrictions and a chronic supply shortage.

The research suggests that all of Australia’s capital cities are now ripe for pickings for landlords, which is the first time this has occurred since 2017 – when they began recording rental market data.

Perhaps most interesting is that the data suggests a shift in tenant demand back to inner-city locations where rents are typically lower than suburban locations where the majority of the housing stock is more expensive houses. In particular, Sydney and Melbourne have seen the biggest drop in vacancy rates.

Change in Vacancy Rates and Listings

The accepted industry standard for Australian rental property is that a 3% vacancy rate represents a balanced market, when vacancy falls below that level market conditions favour landlords. With vacancy rates now down to 1.0% nationally, we are entering a market phase where chronic shortages are likely to put significant pressure on rents.

Vacancy
(Feb 22)
Vacancy
(Feb 22)
Listings March
(% Change MoM)
Listings March
(% Change MoM)
National1.1%1.0%-12.9%-52.2%
Adelaide0.3%0.2%-31.5%-68.6%
Hobart0.2%0.3%28.8%-11.6%
Canberra0.5%0.5%-5.9%-30.8%
Perth0.5%0.5%-2.6%-19.4%
Darwin0.6%0.5%-22.0%-11.9%
Brisbane0.8%0.7%-20.4%-49.9%
Sydney1.7%1.4%-12.4%-48.9%
Melbourne2.1%1.8%-12.5%-56.9%
Source. Domain.com.au

Adelaide and Hobart come out on top from a landlord’s perspective with both recording vacancy rates of just 0.2% and 0.3% respectively. However, the rental stock has plummeted across Australia’s capital cities with Melbourne, Sydney and Brisbane all showing the most significant drops in rental housing availability reducing by 56.9%, 48.9% and 49.9% respectively.

Asking rents throughout Australia have surged to record highs with rental prices anticipated to increase even further over the coming years and months, as Australia’s housing market struggles to build new stock to meet demand which is in large part driven by high immigration. The rental crisis is likely to be compounded by government policies that have discouraged investors from entering the rental market.

Is now the time to Invest?

Policies have been introduced to deter both domestic and international investors from the real estate market – most notably, increased stamp duty for offshore buyers. But, for most investors recent capital growth, increasing rents as well as the ability to offset 100% of your interest expense against taxes make it an attractive proposition.

How do Australian Purchase costs compare to International Markets?

In comparison to other international markets, Australia is typically more expensive from an initial purchase tax and purchase cost perspetive.

 Australia ($AUD)New Zealand ($NZ)United Kingdom (£)
Legal FeesBetween $750 and $1,500 depending on property and stateBetween $750 and $1,500 depending on property and state£2,000 – £3,000
Stamp DutyProgressive tax regime based on the purchase priceNilProgressive tax regime based on the purchase price
First Home Buyer GrantsYesNoYes
Surcharge for Investor and Second Home BuyerNoNo3%
Surcharge on Non-Resident BuyerYes (depending on the state, up to 8%)No2%
Transfer Chargescirca. $150$176Between £190 and £910 depending on the purchase price.
Source. Prospoer – An Insiders Guide to Investing in Off-Plan Property

Can foreigners buy Property in Australia?

In Australia, foreign purchasers cannot purchase existing or ‘second hand’ properties. However, they can buy new-build property, subject to Foreigner Investment Review Board (FIRB) approval.

Certain non-resident buyers may not require FIRB approval before purchasing residential real estate in Australia, such as:

  • Australian citizens (regardless of whether they are resident in Australia or not)
  • New Zealand citizens
  • Holders of an Australian permanent visa; or
  • Foreigners purchasing property as joint tenants with an Australian citizen spouse, New Zealand citizen spouse, or Australian permanent resident spouse.

The FIRB assesses applications from foreigners who wish to purchase property in Australia.  For new developments, foreign buyers generally need to apply for approval before purchasing their property.

A new dwelling is defined as:

A dwelling that will be, is being or has been built on residential land, has not been previously sold as a dwelling and has either: not been previously occupied or if the dwelling is part of a development, was sold by the developer of that development and has not been occupied for more than 12 months in total.

There are fees to apply for FIRB approval; the fee depends on the purchase price of the property.

Australian rental property

FIRB fees

Purchase PriceFIRB Fee
Less than $1 million$5,700
$1,000,001to $1,999,999$11,500
$2,000,000 to $2,999,999$23,100
$3,000,000 to $3,999,999$34,600
$4,000,000 to $4,999,999$46,200
$5,000,000 to $5,999,999$57,700
$6,000,000 to $6,999,999$69,300
$7,000,000 to $7,999,999$80,900
$8,000,000 to $8,999,999$92,600
$9,000,000 to $9,999,999$104,100
$10,000,000 or higherSubject to a specific amount of purchase price.[CJ1] 

New Dwelling Exemption Certificate

A developer can obtain a New Dwelling Exemption Certificate. This allows them to sell dwellings in a specified development to foreigners, and means that foreign buyers do not require individual foreign investment approval to purchase.

Developers can apply for a New Dwelling Exemption Certificate if the development:

  • Consists of 50 or more dwellings
  • Has development approval from the relevant government authority
  • Was planned in such a way that foreign investment approval was sought to purchase the land, and any conditions are being met.

Where a developer holds a New Dwelling Exemption certificate, it limits the number of apartments that can be sold to foreign buyers to 50% of the total apartments. If the 50% quota is reached, any additional foreign buyers will require approval from FIRB on an individual basis. 

Sale contracts differ between those with pre-approved New Dwelling Exemption Certificates and those buyers in the process of obtaining FIRB approval. For those seeking their FIRB approval, sales contracts should be ‘subject to FIRB approval’.