Harsh lessons ahead for Melbourne, Sydney property markets as student numbers cut

Melbourne's already hard-hit property market is likely to suffer the most from cuts to the numbers of international students, while there could be some rough seas ahead for the purpose-built student accommodation sector in Sydney.

Five international students
International students make up only four per cent of Australia’s rental market but a reduction in their numbers could have major impacts in some parts of Sydney and Melbourne. (Image source: Shutterstock.com)

Rental markets of traditional student suburbs of inner Melbourne and Sydney — and purpose-built student accommodation investments — are likely to be hardest hit by planned government cuts to international student numbers. 

The Albanese Government plans to cap new international students at 270,000 next year, in moves to curb record migration, ease housing pressures, and clamp down on “shonky” private colleges, it says. 

The legislation, which is yet to pass the Senate, follows a surge in international student numbers and net migration since the start of the Covid-19 pandemic. 

In February, overall international student numbers passed 700,000 for the first time. 

Buyer’s agent Jarrod McCabe, Director of Wakelin Property Advisory, said Melbourne and Sydney, which attracted the most international students, would likely endure the brunt of the impact. 

“I think it will definitely have an impact on the rental market,” Mr McCabe told Australian Property Investor Magazine

“If it’s a significant change, particularly in the high-rise sector and in apartments around universities, that has a flow-on effect to other areas as well”. 

He predicted that the impact would likely be greatest in Melbourne, where he is based, because of ongoing softness in the property investment market, compounded by relatively high interest rates. 

“In some capital markets the investor market is still quite good but in Melbourne it’s not strong at all and there’s a lot of investors getting out,” he said.  

“That’s particularly the case given the holding costs associated with investment properties”. 

In Sydney, the inner-eastern suburb of Kensington and the CBD suburbs of Ultimo and Haymarket — all extremely close to major universities — were likely to be impacted, said buyers agent Joshua Meli. 

Co-founder and Managing Director of CH Secure, an arm of agency Cohen Handler specialising in affordable investment properties, Mr Meli said purpose-built student accommodation properties would be hardest hit. 

“For those facilities they typically charge a premium and it will be very interesting to see what happens to them,” he said. 

Many such developments were built by private operators, with individual rooms or apartments sold to investors on strata titles. 

“In Sydney there’s quite a big proportion of purpose-built student accommodation, such as in Bondi Junction and Haymarket,” Mr Meli said. 

“A large proportion of that is for international students, suggesting they might have to repurpose some of it, such as using it to also accommodate more domestic students”. 

Either way, significant cuts to international student numbers would likely put downward pressure on what those facilities could charge. 

There would be a “definite impact” on the property rental markets in Ultimo, Haymarket and Kensington, as well as Camperdown in Sydney’s inner west, with some flow-on impact on neighbouring areas. 

But the Sydney real estate market overall would be largely unaffected by the student caps. 

“In those suburbs it will have an impact, but I don’t think we’re going to see a reduction in vacancy rates in Sydney generally,” Mr Meli said. 

There was ongoing strong demand in inner-Sydney, particularly for investment properties, with investor lending at near record highs. 

“From a sales perspective there’s still very large demand, people are still borrowing and still buying,” Mr Meli said. 

“That’s interesting given the quite high interest rate but we don’t see it slowing down in the investment space”. 

Demand for “run-down one and two bedders” in Sydney’s eastern suburbs — popular with buyers seeking to renovate and flip — was now so strong such properties were attracting a premium. 

The Property Council of Australia has noted that international students are less concentrated in the market for rental houses that are popular with families, preferring apartments. The vast majority of renters are couples, single parents or lone person households who are not international student visa holders.

The Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024, which passed the lower house in late August, would give the Federal Government the ability to set limits on international students per education provider. 

If they pass the Senate, they will take effect from 1 January 2025. 

The government has cited housing pressures, higher overall migration, and unethical practices in the vocational training sector as reasons for the changes. 

Net migration, aided by surging international student numbers, hit a record 548,800 in the year to September 2023. 

The Federal Government has implemented several measures that are already causing numbers to drop. 

From 1 July this year, the foreign student visa application fee was more than doubled, from $710 to $1,600, and stricter English language tests have been implemented. 

Education Minister Jason Clare has also led a crackdown on non-genuine students using private education providers as a backdoor for working in Australia and permanent residency. 

Such operators had come bounding back since the reopening of the nation’s borders. 

“Students are back but so are the shonks,” Mr Clare said of such operators. 

International student enrolments at universities were currently about 10 per cent above pre-pandemic levels, while enrolments at private providers were up around 50 per cent, he said. 

Regarding the 270,000 annual cap on international students, Mr Clare said around 145,000 places would be for publicly funded universities and around 95,000 for “vocational institutions”. 

The changes meant there would be more international students “in our universities” and “fewer in our vocational providers”.

Sydney student accommodation sector to be hit

Jo Masters, Chief Economist at investment bank Barrenjoey Capital Partners, said the slowdown had already begun, with a surge in the number of rejections of international student visa applications in recent months. 

The proportion of applications rejected, normally at around 12 per cent, was “currently about 72 per cent”, Ms Masters told a property symposium in Sydney. 

“Even prior to these caps, we’ve been seeing this processing slow down in order to try and moderate the flow,” she said. 

The Group of Eight (Go8), a group of Australia’s top universities, say they will be among the hardest hit, claiming they will lose 22,000 international students, around 30 per cent of new recruits, costing as much as $1 billion. 

The Go8 comprises Australia's leading research-intensive universities – the University of Melbourne, the Australian National University, the University of Sydney, the University of Queensland, the University of Western Australia, the University of Adelaide, Monash University and UNSW Sydney.

The many moving arms to the policy changes — both proposed and in train — add difficulty to predicting market impacts. 

But Mr Meli warns there could be some rough seas ahead for the purpose-built student accommodation sector, especially in Sydney. 

“It’s going to be very interesting to see what happens,” he said. 

“I think they will be very heavily impacted”. 

Article Q&A

What impact will a reduction in international students have on real estate markets?

Rental markets of traditional student suburbs of inner Melbourne and Sydney — and purpose-built student accommodation investments — are likely to be hardest hit by planned government cuts to international student numbers. The impact would likely be greatest in Melbourne because of ongoing softness in the property investment market, compounded by relatively high interest rates.

What proportion of renters in Australia are international students?

International students make up only four per cent of Australia’s rental market but a reduction in their numbers could have major impacts on property markets in some parts of Sydney and Melbourne.

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