Investors urged to ride out student exodus

Investors impacted by the absence of international students could be well placed if they can hang in for another six to 12 months, with Australia’s handling of the COVID-19 pandemic likely to place the country at the top of foreign students’ wishlist when borders reopen.

Analysis of Chinese property buyer activity relating to Australia's education sector by Juwai IQI shows there will likely be pain before any gain, however, with student numbers likely to continue to fall and rental vacancies to rise at least until mid-way through next year.

Property markets in Sydney and Melbourne have been hardest hit, with Australia’s two biggest cities attracting the largest number of international students in recent years.

In Sydney, more than 79,000 international students went back to their home countries at the onset of the outbreak, with the impacts felt most acutely in rental markets in Waterloo and Beaconsfield, and inner Sydney, Haymarket and The Rocks. 

Melbourne lost more than 66,000 international students, Juwai’s analysis showed, with the rising rental vacancies mainly focused in the CBD and other inner city areas.

Juwai IQI chairman Georg Chmiel said many people would find it surprising that the difference of a few thousand students could lead to a 5 per cent to 7 per cent increase in rental vacancy rates in certain suburbs.

“Once you add that many units to the market, landlords have to compete to win tenants,” Mr Chmiel said.

“Very quickly you have rents dropping and vacancy rates climbing.”

But as soon as borders open, Mr Chmiel said he expected Chinese students to quickly return to Australia in numbers higher than their 2019 peak.

“This is the current situation,” Mr Chmiel said. “Chinese buyer enquiries are down to just half the level of a year ago.

“These numbers are parallel to the drop in student visas. There is still great demand and 135,000 students are enrolled and working from home, so to speak, and could quickly return to Australia as soon as borders open.”

Mr Chmiel said investors who may be dealing with a vacant property now may want to hang on for another six to 12 months.

“Student numbers will begin climbing again, your rents will go back up, and your investment will regain lost value,” Mr Chmiel said.’

On the flipside, Mr Chmiel said there may be opportunities for investors with the capacity to purchase to cash in on distressed owners.

“If you’re looking to take advantage of this dip in the market, then the best opportunity is likely to to purchase in the hardest-hit suburbs from an owner who can no longer afford to carry the property with the lower prevailing rents,” he said.

“Look for investments with more space, outdoor space, and nearby parks and outdoor amenities.

“Even after the pandemic, buyers and renters will be seeking more liveable property.’

“It takes a brave investor to purchase when the market is hurting, but it can be worthwhile.”

Mr Chmiel said he was very confident that international students would come flocking back to Australian cities, as COVID-19 outbreaks continue to surge in other major educational markets such as the United States and the United Kingdom.

He said the Australian government would be well served in maximising its opportunities by finding a way to open the country to students even prior to a COVID-19 vaccine rollout.

“China and Australia both have extremely low rates of coronavirus infection. Perhaps Australia and China could open a travel corridor as we have done with New Zealand,” Mr Chmiel said. 

“That would enable reentry for the largest share of students who want to come back into the country. 

“About 66 per ent of the students who are currently enrolled in Australian institutions but are living in their home country are from China.

“Most Chinese property buyers in Australia are purchasing for their own use, so if you restart the engines of owner occupancy, you will restart Chinese interest in the Australian property market. 

 “If you have tours, students, business people and family members of relatives who live here coming into the country freely, you will see Chinese interest in the property market flame up again.

 “Then, if you have a strong story that prices will grow and investments will have good returns, you’ll see that interest grow even further.”