There’s been a lot of talk about premium property markets suffering significant price corrections in the latest housing slowdown, with blue chip suburbs feeling the pinch of the world’s economic woes.
Now, the latest victim of these uncertain global economic times is the executive rental market in Sydney, Melbourne and to a lesser extent, Brisbane.
As of October 1st, most overseas executives or their companies will no longer be tempted to spend up big on Sydney accommodation in order to take advantage of lucrative tax breaks, which will become a thing of the past as changes are made to the Living Away From Home Allowance.
According to a Sydney Morning Herald article, the lavish harbour views and beachfront apartments that have been the lot of foreign workers for years, will no longer be subsidized by the federal government as they tighten their belts.
Partner in accountancy firm Nexia Australia, Sean Urquhart believes the upper end of rental housing markets in Sydney, Melbourne and to a lesser extent Brisbane are set to take a bath.
”A lot of the premium properties were absorbed on concessional taxes and allowances,” he said. ”There won’t be those people renting those places.”
Assistant Treasurer, Bill Shorten, said in November the concessions were being ”widely exploited”.
Top end rentals are falling
Just as luxury property prices have taken a dive in recent times, dramatic drops in apartment rentals have been recorded by Australian Property Monitors, whose data shows a fall of 20 per cent for rents in Point Piper and 25 per cent in Dawes Point over the last six months.
In the exclusive neighbourhoods of Dover Heights and Darling Point, median house rents have fallen by 15 per cent and more than 30 per cent respectively, while in Vaucluse they have fallen close to 30 per cent over a year.
Local agents are advising their landlords to lock tenants in to longer than normal lease periods before the new laws come in to play to avoid being stung by a massive drop in their rental income.
Some believe that without the tax break incentives, which effectively meant the government was often paying half the rent; companies will no longer offer accommodation as part of executive salary packages.
In turn, corporate high fliers who have enjoyed living the high life in some of Sydney and Melbourne’s more exclusive locations will be forced to re-assess their rental requirements and downsize into more affordable accommodation.
”Now that they’re not getting the benefit, they’ve decided to move somewhere cheaper,” says Kathy Nunn, director of Elite Executive Relocation Services.
She said some were abandoning plans to come here, citing the case of an American in financial services. ”When he was headhunted he thought he would be getting the benefit,” Ms Nunn said.
”But he’s done his calculations and even though he and the family loved Sydney … the financial incentive just wasn’t enough because the tax benefits wouldn’t be there.”
The chief executive of the Irish Chamber of Commerce, Barry Corr, said he had been inundated with inquiries from executives – lawyers, accountants, engineers and IT workers – who will now have to pay for their accommodation.
”They are about to see a substantial change in their disposable income and it’s highly likely that people will have to downsize … they may have to forgo those sea views.”
Will this make top end values fall further?
Some agents believe investors in the top end markets will be forced to consider selling at significantly deflated prices in order to rid themselves of the underperforming rental properties, particularly if they only held on in order to rake in the lucrative top shelf rents they have been receiving up until now.
Top end properties never made great investments – the potential demographics of the tenants was always too narrow.
ON the other hand this is potentially good news for the average property investor as more overseas companies start to seek out properties without such high rental price tags, but still with good amenity and in close proximity to the CBD’s of Melbourne and Sydney.