‘Mass exodus’: why investors are jumping ship

Sep 2023Karen Millers

Australia is losing critical rental stock at a time when it’s needed more than ever due to record migration.

Alarming new polling has revealed almost one in eight investors across the country sold a rental property over the past year, with 73 per cent of the properties selling to owner occupiers.

NSW investors accounted for about 20 per cent of the sales, according to the survey by the Property Investment Professionals of Australia (PIPA).

PIPA noted the sales resulted in hundreds of thousands of properties being “stripped from rental markets”.

It followed a high rate of investor sales over previous years, with earlier PIPA polling showing 16.7 per cent of investors had sold at least one property in the previous two years.

Common reasons investors sold their properties were rising interest rates, governments’ threatening to increase taxes or introduce rent freezes, and the need to clear debt.

PIPA chairman Nicola McDougall described the sales as a “mass exodus of private investors from the market”.

“Clearly, this would explain the undersupply of rental properties available for tenants around the nation,” she said.

Victoria and Queensland had the highest rates of investor sales, which reflected recent proposed rental market reforms, Ms McDougall said.

“Those states are leading the charge with restrictive, unfair and inefficient legislative reforms that adversely impact property investors,” she said.

Victoria and Queensland were considered the least accommodating states for investors by PIPA members, while NSW and WA were considered more accommodating for investors.

A slight improvement in the appeal of NSW reflected how Sydney had weathered the nation’s Reserve-Bank-led market correction.

“It’s had a relatively short period where prices were reducing and that would have enamoured some investors,” Ms McDougall said. “But it’s still a very expensive market and that would limit the number of investors who could purchase there.”

Ms McDougall said it remains clear investors are selling up or avoiding buying due to attacks by governments disguised as reform that make owning a rental difficult.

Investors’ major reasons for selling over the past year were changing tenancy laws (43 per cent), interest rate rises (40 per cent), negative cash flow (23.2 per cent) and offloading an underperforming asset (18 per cent).

Other popular reasons were governments increasing or threatening to increase taxes, duties, and levies (47 per cent) and talk of rental freezes (34.6 per cent).

In a sign of more pressure to come for tenants, the survey found 38 per cent of investors said it’s likely they will sell within the next year.

“Our research shows 92 per cent of investors are grappling with higher holding costs because of interest rates, higher mortgages, and inflation,” Ms McDougal said.

“Despite that, 55 per cent of investors said they were passing on just 10 per cent or less of these higher costs to their tenants. Another 26.9 per cent reported passing on 11-25 per cent of extra expenses in the form of rent increases.”

This year’s PIPA Property Investor Sentiment Survey heard the views of 1,724 investors during the month of August – a record response.

Originally Published: Aidan Devine | Realestate.com.au | 12 September 2023

https://www.realestate.com.au/news/mass-exodus-why-investors-are-jumping-ship/

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