The sell-off of investment properties around the nation is continuing unabated and is fuelling fears of an even tighter rental market with higher holding and compliance costs as well as new property taxes to blame, according to the 2024 PIPA Annual Investor Sentiment Survey.

The annual survey – now in its 10^th year – found that even more investors sold a property over the year to August than they did last year, with about 65% of these former rental properties being purchased by homeowners rather than 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,” PIPA Chair Nicola McDougall said.

“These properties are predominantly being purchased by homebuyers, which means fewer and fewer rental properties are available to lease by tenants.”

Of those investors exiting the market, according to this year’s survey, the property was bought by another investor in 31% of transactions (up from 24% last year and similar to the 33% reported in 2022). However, overwhelmingly, those rental homes were bought by existing homeowners (44%) or first-home buyers (21%).

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

“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.”

According to the ATO individual taxation statistics for 2021-2022, 2.268 million Australians have an interest in rental property, just one per cent higher than the year before, and just five per cent higher than it was five years ago.  

Ms McDougall said investors continue to sell dwellings in the greatest volumes in our capital cities, with Brisbane again experiencing 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).

When it comes to investors selling in regional areas, the number one location was Regional NSW (10.5% similar to last year) followed by Regional Victoria (9.32% up from 6.4% last yar) and Regional Qld (7.4% down significantly from 16.4% in the 2023 survey).

“At a State or Territory level, Queensland experienced the most investor sales over the past year at 33.4% but this was down from 39.7 % last year, followed closely by Victoria 31%, which was similar to last year, and NSW on 25.4%, which was up from 19% last year,” Ms McDougall said.  

“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.

“Plus, with market conditions in Victoria being very soft over the past year, it was hardly the ideal time for an investor to sell their stock there, but many did anyway. What does that tell you?”

Counter-cyclical investing

However, savvy investors are clearly recognising 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 – with 26.2% of survey respondents indicating it was the best place to invest right now, followed by Perth (25.1%) and Brisbane (17.8%). Regional Queensland is the best regional market to invest, according to this year’s survey results.

“Last year, investors indicated that Perth was the capital city with the best investment prospects – and they were right with property prices in the Western Australian capital the city market leader over the past year,” Ms McDougall said.

“Brisbane’s third placing in this year’s survey is its worst for many years, especially considering some 54% of respondents placed it as the most investment-worthy back in 2021.”

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.

Investors react to reforms and taxes

Of those investors who sold over the past year, nearly 65% indicated the holding period was less than 10 years, with a staggering nearly one in five saying they sold an investment property that they had owned for less than three years, according to the latest survey results.

“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 said.

“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%).

“Interestingly, increased lending costs was not in the top three reasons for selling (25.4%).”

Perhaps unsurprisingly, Ms McDougall said, survey respondents indicated that Victoria was 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-property investment.

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

“NSW has had the biggest turnaround compared to last year – and not in a good way. Last year, it was viewed as the most accommodating of property investors, but this year it is viewed as having anti-property investor tendencies.

“Conversely, Queensland has improved in the rankings with investors, increasing from one of the worst to one of the best States or Territories for property investment. Clearly, it has learned from the disaster that was the interstate land tax debacle in 2022.”

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 last year, 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 said.

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%).

Holding costs soaring

More than 70% of survey respondents indicated they were paying between $10,000 and $60,000 in additional mortgage interest annually to service their investment property debt compared to when rates were at record lows during the pandemic.

In addition to higher interest costs, some 36% say they also have experienced costs increases of between 11% and 20% over the past year for such expenses as higher land taxes, compliance and minimum standards improvements, property insurances, and property management, etc.

“As a result, 10.9% of respondents reported experiencing difficulty covering the cash flow shortfall at present. Despite perceptions inflamed by some politicians and the media, most investors (54.6%) are passing on just 10% or less of these higher costs to tenants in the form of rent increases,” Ms McDougall said.

Government interference increasing rents

Myriad rental reforms and new property taxes over the past few years have increased holding costs for investors, which has left them with no choice but to increase rents – a situation contrary to the supposed intentions of state government intervention into the rental market.

When asked what their action would need to be if governments continued to increase costs, 39.1% of survey respondents said they would have no choice but to increase rents to help subsidise some of these increased total operating costs, followed by having no choice but to increase rents to help subsidise all of these increased operating costs (24.1%) and highly likely to increase rents (17.2%).

“The continual changing of the goal posts by various levels of government – masquerading as tenant-friendly policies – is continuing to negatively impact property investment sentiment as well as rental housing supply,” Ms McDougall said.

“When asked what the biggest challenges or concerns were that might derail their property investment strategy, a whopping 86.8% said it was government interference in the rental market such as regulation, rental caps or freezes, followed by a blow out in holding costs of the property (67.6%) and inflation and higher interest rates (61.6%).”

ENDS

This year’s PIPA Property Investor Sentiment Survey, which was conducted online in August, heard the views of 1,288 investors around the nation.

PIPA’s membership base includes qualified property investment advisers, as well as a range of professionals whose business operations form part of the property investment process. These include financial planners, property buyers and advocates, accountants, mortgage brokers, real estate agents, conveyancers, depreciation specialists, lenders, and developers.

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Bricks & Mortar Media | media@bricksandmortarmedia.com.au