Property investors keen on snapping up inner-city pads in Sydney and Melbourne have been warned not to expect to make a quick buck on their investment.

Small city apartments have traditionally been popular with the likes of young professionals and international students.

But closed international borders and more opportunities to work from home mean fewer people are interested in city living, which in turn has led to lower returns for property investors.

CoreLogic research shows in the 12 months leading up to March 2021, Sydney’s inner-city median asking rents fell by 14.5 per cent from $620 per week to $530.

They fell even further in inner-city Melbourne – dropping by 18.9 per cent over the year from $475 per week to $385.

Suburbanite director Anna Porter said although overall city property markets are recovering from COVID-19, and inner-city rent prices are beginning to stabilise in Sydney and Melbourne, inner-city units have experienced the slowest price growth.

Source: SQM Research

Ms Porter said an oversupply of one-bedroom and studio units designed with students in mind had affected the market for years, with COVID-19 only exacerbating the issue.

“That supply is starting to really cripple the market,” she said.

“It’s not balanced any more – there’s an oversupply issue that’s just not being absorbed.”

Wakelin Property Advisory director Jarrod McCabe advised against buying city units as a short-term investment, but said it could be a good time to buy for owner-occupiers.

“[Inner-city units] are not the type of property that we would advise our clients to buy in or outside of COVID times, because they don’t typically show good levels of capital growth long term,” Mr McCabe said.

“For personal use, I would say it’s probably not a bad time to do it…because there’s not as much competition.

“And you do find that international investors consider [inner-city units] as well, so you could get in now before they start to take up that type of property over the years ahead.”

Source: SQM Research

Online learning has largely been viewed as a back-up plan for education during border and lockdown restrictions.

But Ms Porter said its increasing popularity may lead to fewer international and regional students moving to capital cities when borders reopen.

“If people like the online learning environment … better, and the TAFEs and the universities get really good at it, then there [will] continue to be a lack of international students moving into these cities and into these units,” she said.

Ms Porter said because young families and retirees are usually less interested in buying city apartments, the absence of students and tourists would have a big effect on the inner-city market.

Even when Australia’s borders do open, it may take some time for international students and travellers to travel to Australia in the same numbers they did before the pandemic, especially while mandatory quarantine periods are still in place, Mr McCabe said.

Although he referred to small inner-city units as “infinite assets”, due to these properties being continuously built in major cities despite a lack of demand, he and Ms Porter agreed it could be wiser to invest in suburban or regional areas.

Ms Porter said a combination of affordable prices, strong demand for housing and high levels of job creation in suburbs beyond the major cities made these areas more attractive investment options.

“So some of the smaller cities that get overlooked quite often, like Adelaide, the Sunshine Coast, and Brisbane, have some really good outlooks for the property market,” Ms Porter said.

“I would tell investors to think a little bit outside of buying a city unit right now.”