Outlook brightening for landlords affected by student absences

Landlords facing rental losses due to the absence of international students would be well served to hold onto their investments rather than cut their losses and sell in a depressed market.

That’s the call from Juwai IQI co-founder Georg Chmiel, whose research indicates values and rents are likely to rebound quickly once the student population rebuilds after international borders reopen.

Mr Chmiel, who had similar advice for apartment investors last year, said the depressed asset values in the current inner city markets in Sydney and Melbourne made it a poor time to sell.

“This is  a good market for investors who are brave enough to buy while prices are down,” Mr Chmiel said.

“It is disastrous for investors who purchased at the high prices of the last couple of years.”

Mr Chmiel said Sydney’s Inner West and Melbourne’s CBD were the most acutely affected by the absence of students. 

“In the Inner West of Sydney, the average asking price for units has fallen by 9.8 per cent over the past 12 month,” he said.

“In the same area, rents are down 8.8 per cent compared to a year ago.

“Asking prices in the Melbourne city centre are down 8.1 per cent compared to 12 months ago. Rents have plummeted a shocking 20.1 per cent.

“In Melbourne, the CBD has traditionally housed a large number of international students - before the pandemic, international students made up more than 30 per cent of residents in some Melbourne suburbs.”

Mr Chmiel said landlords in Sydney’s Inner West were facing annualised losses of around $2,200 per property, on average, while those in Melbourne were staring down a loss of up to $5,000 per property.

But for investors feeling the pinch, Mr Chmiel said the activities of major student housing operators in recent months was an indication that conditions were likely to improve in the medium-term.

"Companies like Scape that operate purpose-built, large-scale student accommodation are not giving up," he said.

"It is not easy to convert these properties to regular rental apartments, but more importantly, they see the long-term potential.

"You can make a very credible case that Australian student numbers will grow in the post-COVID period to be higher than they were in 2019.

"By 2023, student housing operator Scape will have 10,000 more rooms for rent in Sydney, Melbourne and Brisbane than they do today.” 

Mr Chmiel said while occupancy was down to just 25 per cent, on average, for student accommodation providers, investment was continuing to take place.

“Rather than folding their hands, student accommodation operators are doubling their bets,” he said.

“They expect 2021 to be hard, 2022 to be a recovery year and business to be relatively good from 2023. 

“They are trying to find other users for their units in the meantime, such as Australian students, essential workers and interstate travellers. 

“This is just a short-term effort to limit their losses until international students come back."