What drives investors out of the market?
Investment property sales are continuing to rise across Australia, intensifying concerns about the country’s rental market, according to the 2024 Annual Investor Sentiment Survey by the Property Investment Professionals of Australia (PIPA).
The survey, now in its 10th year, found that more investors are offloading their properties, with 65% of these homes being purchased by owner-occupiers, thereby reducing the supply of rental housing.
“This year’s survey found 14.1% of respondents sold at least one investment property in the past year, up from 12.1% last year,” said PIPA chair Nicola McDougall. “These properties are predominantly being purchased by homebuyers, which means fewer rental properties are available for tenants.”
Among those selling, only 31% of investment properties were bought by other investors, up from 24% last year. In contrast, existing homeowners bought 44% of these properties, while 21% went to first home buyers. McDougall warned that this shift is further tightening the rental market.
“Yes, investors are still buying rental properties, but not at the rate needed to replace those being sold, or to meet the rental needs of our growing population,” she said.
The PIPA survey found that investor exits were most prevalent in major cities, particularly Brisbane, where 26% of investors sold properties, up from 23.3% last year. Sydney also saw an increase, with 14.9% of investors selling, compared to 8.9% last year. Melbourne saw a slight decline, with 21.7% of investors selling, down from 24.8% the previous year.
When it comes to investors selling in regional areas, investor sales were highest in regional New South Wales (10.5%), followed by regional Victoria (9.3%) and regional Queensland (7.4%).
Queensland led in overall investor sales at 33.4%, though down from 39.7% last year. Victoria followed at 31%, while New South Wales saw an increase to 25.4% from 19%.
McDougall noted that while strong market conditions in Queensland partly explain the high sales volume, the introduction of anti-investor policies and new property taxes in New South Wales and Victoria likely contributed to the surge in those states.
Despite market volatility, some investors remain optimistic about capital growth potential. Melbourne, despite being the most depressed capital market, was seen as the top investment location by 26.2% of respondents, followed by Perth (25.1%) and Brisbane (17.8%). Regional Queensland was the most favoured regional market.
Nearly 65% of investors who sold properties in the past year had held them for less than 10 years, with almost 20% selling after less than three years of ownership. McDougall attributed this trend to rising holding and compliance costs, such as insurance and minimum housing standards, which have made owning rental properties less viable for many investors. Increased land taxes and government charges were also significant factors driving sales.
“Investors are reacting to the increased costs and rental reforms that make holding investment properties unpalatable,” McDougall said. Compliance costs were the primary reason for selling, cited by 44.1% of respondents, followed by increased government charges (35.4%) and the need to reduce debt (32.9%).
Victoria was perceived as the least accommodating state for property investors, followed by the ACT and New South Wales, all viewed as anti-property investment due to policy changes. Western Australia, by contrast, was seen as the most pro-investor state.
Overall, investor confidence in the market appears to be waning, with only 45% of respondents believing it is a good time to invest in residential property, down from 55% last year. Furthermore, just 24% purchased an investment property in the past 12 months, down from 26% in 2023 and 37% in 2022.
As holding costs rise, over 70% of respondents reported paying between $10,000 and $60,000 in additional mortgage interest annually, compared to when interest rates were at pandemic lows. In addition, 36% said they faced cost increases of 11% to 20% over the past year, covering items such as land taxes, compliance improvements, and insurance.
Despite these rising costs, most investors (54.6%) passed less than 10% of these expenses onto tenants through rent increases. However, 39.1% said they would have no choice but to raise rents if governments continue to impose additional costs.
“The continual shifting of policies by various levels of government, disguised as tenant-friendly, is negatively impacting property investment sentiment and reducing rental housing supply,” McDougall said.
When asked about the biggest threats to their investment strategies, 86.8% of respondents pointed to government interference, followed by rising holding costs and inflation.
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