Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 15 July 2015

Perth, Darwin see vacancy rates climb (rents decline)

Vacancy rates at 2.4 per cent

SQM Research released its vacancy rates data for the month of June 2015 yesterday.

At this stage in the construction cycle we might expect to see vacancy rates rising, and on a national basis this did indeed prove to be the case with capital city vacancy rates of 2.4 per cent in June slightly higher than the 2.3 per cent recorded one year ago.

The most interesting points of note related to the variances by city.

Over the past year vacancies were a little lower in Sydney, ticking down from 1.9 per cent to 1.8 per cent. Meanwhile Melbourne has seen its previously elevated vacancy rates decline from 2.7 per cent to 2.3 per cent.

The Hobart market has also tightened to become a landlords' market with vacancies declining from 1.8 per cent to 1.5 per cent.

However, it is now a markedly different story in the resources cities where vacancy rates have gambolled to 3.5 per cent in Darwin and 3.6 per cent in Perth.

This is a weak result for the resources capitals which mirrors what we have seen from an array of other data releases

Darwin rents crunced

Over the past 12 months the SQM figures showed that although asking rents have increased across most capital cities, asking rents in Darwin have been crunched, declining by 16.4 per cent for houses and 9.8 per cent for units.

At long last it looks as though the Top End's incredible property market run - which has defied belief at times - is finally set to end in a sharp correction. 

This serves as a timely reminder of just how wide of the mark many of the property bubble theories have been - Darwin apparently had the "smallest property bubble" according to the academics.

This was despite the full ABS Residential Property Price Indexes series for the Top End capital exploding from just 40.5 in Q3 2003 to 113.7 by Q4 2014! 

Of course this was absolute hooey as the scale of the Darwin price correction will now doubtless prove.

In the real world a wide range of other market fundamentals are far more important than rental yields, which are themselves driven by the underlying market dynamics - indeed, just as is the case in other assets classes, elevated yields are often reflective of real or perceived higher risk. 

Perth rents are also down over the past year, although somewhat less dramatically, with house and unit asking rents down by 6.2 per cent and 4.9 per cent respectively.