Australian Real Estate & Housing Market News

Rental property supply shrinks as investors exit amid rising costs

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Image from CBC News/David Horemans
KEY POINTS
  • 14% of investors sold a rental property, with most bought by owner-occupiers
  • Investor purchases aren't keeping up with lost rentals or rising demand
  • Melbourne is still viewed as the best place to invest despite negative sentiment

A major survey of Australian property investors points to an even tighter rental market, with an increasing number of investors selling a property in the past year.

 

Property Investment Professionals of Australia (PIPA) says its latest annual Investor Sentiment Survey shows higher holding and compliance costs and new property taxes are being cited as reasons why more investors are selling up.

 

The details

 

PIPA represents hundreds of people working in the property investment space, including advisers, financial planners, mortgage brokers, real estate agents and tax specialists.

 

Every 12 months, it conducts an online survey of property investors.

 

Properties

 

More than 1250 property investors took part in the survey – now in its 10th year – which found that more investors sold a property over the year to August 2024 than in the previous 12 months.

 

About 65% of these former rental properties were purchased by homeowners, including first homebuyers, rather than other investors.

 

“This year’s survey found 14.1% of respondents sold at least one investment property in the past year – an increase from 12.1% last year,” says PIPA Chair Nicola McDougall.

 

While that’s a relatively small increase, McDougall says these properties “are predominantly being purchased by homebuyers, which means fewer and fewer rental properties are available to lease by tenants.”

 

“When rental properties are bought by existing homeowners, then those properties are removed from the rental pool, thus reducing overall supply.” 

 

“Yes, investors are still buying rental properties, but not at the rate that is needed to replace those that have been lost nor to keep up with the rental housing needs of our soaring population.”

 

Ms McDougall says the capital cities dominate the areas where investors are exiting the market, with Brisbane seeing the highest percentage of investor sales over the past year.

 

Survey respondents indicated they had sold at least one dwelling in Brisbane (26% up from 23.3% last year), Melbourne (21.7% down from 24.8% last year) and Sydney (14.9% up from 8.9% last year).

 

In regional areas, the number one location where landlords were selling up was Regional NSW (10.5%, similar to last year), Regional Victoria (9.32%, up from 6.4% last year) and Regional Qld (7.4%, down significantly from 16.4% in the 2023 survey).

 

“The strong market conditions in the sunshine state over the past year can partly explain its high volume of investor sales, while the New South Wales and Victorian governments have introduced a plethora of anti-investor rental reforms and new property taxes over the same period,” Nicola McDougall explains.

 

Reasons

 

“When asked which reasons contributed to selling one or more of their investment properties over the past year, survey respondents indicated it was predominantly due to increased general holding and compliance costs such as insurance, minimum housing standards, property management fees, etc. (44.1%) followed by increased land tax or government charges (35.4%) and to reduce total debt exposure (32.9%).”

 

“It’s clear that investors have not only had enough of being the golden gooses to financially fluff up state government bottom lines, but they also are reacting to the myriad rental reforms and property taxes that now make holding an investment property either unpalatable or unviable for them,” Ms McDougall says.

 

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Melbourne not so bad

 

Nicola McDougall says PIPA’s investor sentiment survey also indicates that Victoria is the least accommodating state or territory for property investors in the nation, followed by the ACT, and NSW, which were all seen as being anti-investment.

 

“At the other end of the spectrum – by a sizable margin, it must be said – investors believe that Western Australia is the most pro-property investment state in the nation,” she says.

 

Best-Place

 

While Victoria may be on the nose with many, PIPA’s Investor Sentiment Survey also shows savvy investors clearly recognise that Melbourne offers excellent future capital growth, even though its market has been the most depressed of any capital city in the nation over the past year.

 

26.2% of survey respondents say it’s the best place to invest right now, followed by Perth (25.1%) and Brisbane (17.8%), while Regional Queensland was the most attractive regional market.

 

The number one reason why investors believe these locations are the best to invest in right now was good long-term capital growth prospects (57.5%), followed by good population growth (52.6%) and being a major capital city (47.9%), according to the survey results.

 

Fewer investors looking to buy

 

About 45% of survey respondents believe it is a good time to invest in residential property, which is down from 55% of investors in the last survey, 58% in 2022, and 62% in 2021.

 

“With market conditions quite favourable in many locations, it is interesting that fewer and fewer investors are looking to buy – however, high interest rates will be part of the reason – and one can only also assume that the plethora of rental reforms and political interference has done little apart from to damage property investor sentiment,” Ms McDougall says.

 

Only about 24% of investors purchased a property over the past 12 months, down from 26% last year and 37% in 2022.

 

The top locations for property investment purchases over the past year were Brisbane (24.4%), Perth (21.1%), and Regional Qld (17.8%).

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