WHY VACANCY RATES ARE IMPORTANT
Firstly, the rental vacancy rate is the proportion of all rental properties in a suburb that are empty and available for rent at any one time.
For example, if a suburb has 200 rental properties and 5 of them are vacant, then the suburb has a vacancy rate of 2.5.%.
Vacancy rates are very important statistics to know and understand as a property investor as it represents two things:
Degree of risk: There is always a chance that the property will sit empty with no tenants and produce a poor and slow growing cash flow. The holding costs involved for the property will continue, whether your property has a tenant or not. A high vacancy rate represents a high risk of this scenario.
Level of supply in the area:
A vacancy rate of 3% is considered to be an indicator that the market has a ‘balanced’ supply.
A vacancy rate 2% or below is considered a tight market, where rents are likely to be rising, representing an under-supplied market.
A high vacancy rate of 4% and above is an indicator that the market is over-supplied. It is very difficult for an over-supplied property market to increase in value with prices usually remaining stagnant or even declining.
In summary, you should not invest in a property market without knowing the vacancy rates of that suburb. Further analysis will always need to be done to not only review the current vacancy rates but also the forecasted rates.
For example, if there was a large amount of construction occurring in an area, the vacancy rate will increase once the construction completes and if the new supply of property is not occupied.
Once you have researched the vacancy rates, both current and projected, other key factors will also need to be analysed before considering a specific property for investment such as:
Employment and the economic cycle
Population growth and demographic changes
New dwelling construction
Local Infrastructure Investment
To learn more about the other factors to assess for property investment purposed get in touch with us.
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