Hundreds of thousands of rentals have vanished from the national market as fearful investors sell their investment homes.
According to a study of 1,724 investors conducted by the Property Investment Professionals of Australia (PIPA), the number of rental home sales has soared in the last year.
A “staggering” 12.1% of investors sold one or more rental properties, according to PIPA.
Investors in Queensland and Victoria have lead the way out, with over one quarter selling one or more properties in Melbourne and Brisbane.
“About 43% of respondents in this year’s survey sold to an existing homeowner, while 30% sold to a first-home buyer”, PIPA chair Nicola McDougall said.
“Just 24% sold to another investor – down from 33% last year – which means the majority of those investment properties were likely removed from the rental market”.
“Clearly, this would explain the undersupply of rental properties available for tenants around the nation. [This is] yet another stark illustration of the mass exodus of private investors from the market”.
Victoria has introduced a $5 billion land tax increase and proposed limitations on rental price rises or a rent freeze, whereas Queensland implemented and then abandoned proposals for land tax reform.
“It’s not a mystery why so many investors are planning to exit the market, should governments further increase or introduce new taxes and compliance costs, 47.2% of respondents said they would be forced to increase rents”, McDougall said.
There is likely a demographic element to these sales as well.
The below PropTrack chart shows the number of Australian landlords by age:
To nobody’s surprise, most investment properties are owned by older Australians.
Over 60s Australians own the highest share of investment properties followed by 50 to 59 year olds and 40 to 49 year olds.
This means there is an incentive to sell-up with maximum tax benefits and capital growth already achieved.
That said, while more people are selling their investment properties, interest from new investors is also rising.
According to Australian Bureau of Statistics (ABS) housing finance data, investor demand is approaching its high in 2015:
Furthermore, the share of new mortgages flowing to investors has grown to 35.3%, the highest level since 2017. This has been done at the expense of first-time homebuyers:
Therefore, investors are not “fleeing” Australia’s property market.
Rather, we are seeing massive churn, which happens when investors sell to other investors.
Given that interest rates are approaching their cyclical peak and rents are still rapidly rising, demand from new property investors should continue to climb.
