The disappearance of international students has helped slash inner-city rents and asking prices. Some investors are betting big on a resurgence.

Melbourne CBD has been the hardest hit market segment. (Martin Berry, Loop Images, Universal Images Group via Getty Images)
  • International students have left a gaping hole in parts of the Australian property market, leaving out a crucial driver of demand for inner-city apartments.
  • Rents have fallen by as much as 20% in Melbourne’s CBD, while prices in Sydney’s inner west have dropped almost 10% due largely to their disappearance, according to Asian real estate platform Juwai IQI.
  • Chairman Georg Chmiel said the market will recover next year however, with student accomodation providers banking on not only a resurgence of enrolments, but also significant growth, in the coming years.
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Investors in Australia’s most expensive property markets are being squeezed as local renters refuse to pay the same prices expats were paying just 18 months ago.

With the country’s international border still largely shut, the lack of international students on campuses is taking a bite out of segments of the property market typically in hot demand.

While prices have shot higher across the country and its capital cities, the lack of demand for inner-city apartments has cut asking prices in Sydney’s inner west by 9.8%, and in Melbourne’s CBD by 8.1%, according to new data from Asian real estate platform Juwai IQI.

“It is disastrous for investors who purchased at the high prices of the last couple of years,” executive chairman Georg Chmiel said, noting Juwai was advising clients to hold on for now, knowing there “would be more pain before gain”.

“These assets have depressed values now, so it’s a poor time to sell. They are likely to gain value again relatively quickly as the student population rebuilds after travel restarts. This is a good market for investors who are brave enough to buy while prices are down.”

Not that the inner-city rental market is much stronger for investors, with Melbourne and Sydney rents down 20.1% and 8.8% respectively in the same areas. Chmiel attributes the falls largely to the decline of international students, who he says once made up almost a third of residents in some Melbourne suburbs. Now they are reliant on state-based programs designed to return them over and above current arrival caps.

“By July of next year, the number of international students living in Australia will likely have fallen by more than two thirds. From about 500,000 in April 2020 to only about 165,000,” he said. “More than 335,000 students who would have been living in some sort of housing here in Australia will probably be missing.”

It has cost landlords between $2,200 and $5,000 in select suburbs in Sydney and Melbourne, due to both the exodus of international students as well as those looking for more space during the pandemic. Both trends have forced the market to adjust.

“Some landlords have sold out to owner-occupiers, and others have dropped their rents enough to attract tenants from other areas. So, for the most part, these apartments are no longer sitting empty. There are no ghost towns, but landlords have taken a beating,” he said.

It follows a similar shakeout in the short-term stay market, as Airbnbs first flooded back onto the regular rental market in in-demand areas like Bondi and Sydney’s eastern suburbs, before partly transitioning back to short-term accommodation as domestic travel returned.

“Borders are likely to be closed at least until next year, so the situation will probably get worse before it gets better.”

Oversupply of student housing

Not all accomodation can be so easily transformed. Providers of dedicated student facilities like Urban Nest have been busy trying to attract and keep those students who are still in the country, offering six-weeks of free accomodation for students next semester as well as guaranteeing deposits for students who experience financial hardship.

Another, Scape, is offering $1,000 in free stocks to “kickstart” new tenants’ portfolio in Melbourne. Iglu, meanwhile, is offering to pay up to $500 in flights for students “keen to get offline and onto campus”.

“Australian student accommodation operators have some 100,000 beds and $3 billion of assets. Occupancy is down to just 25% on average – meaning that 75% of their rooms are empty,” Chmiel said.

But while the promotions might seem a little desperate, he added that many are looking past the short-term pain.

“They are suffering, but they also have deep pockets, a sophisticated outlook and a long-term time horizon. They are investing more and building more units, even though many of their rooms are empty today.”

“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.”

With Melbourne having just emerged from its fourth lockdown, patience truly is a virtue.