Increase in resi investor sales worsens rental crisis: PIPA

According to the annual Property Investor Sentiment Survey conducted in August 2023 by the Property Investment Professionals of Australia (PIPA), a significant number of investors nationwide have chosen to sell one or more of their rental properties over the past year.

This has added to the existing pressure on the rental market, which is already constrained by low available rental stock and strong demand.

Based on responses from 1,724 property investors, the survey found that 12.1 per cent of respondents had sold at least one investment property in the past year.

Among these sellers, 24 per cent had their properties bought by other investors (down from 33 per cent the previous year), while 43.1 per cent were purchased by existing home owners (up from 32.7 per cent), and 30.3 per cent were acquired by first home buyers (up from 24.3 per cent).

The dwindling supply has also contributed to rising rental costs, with the median weekly advertised rent surging by 11.8 per cent in the year to reach $520 per week, as reported by PropTrack’s rental report for the June 2023 quarter.

Chair of PIPA Nicola McDougall said the trends are having severe impacts on the rental market.

“This clearly shows that rental stock has diminished on the back of exiting landlords who are not being replaced, putting further pressure on the market,” Ms McDougall said.

She estimated that around 217,072 rental properties could have been sold in recent years, with many being purchased by existing home owners rather than other investors, contributing to the shortage of rental properties.

“This would partly explain the dramatic undersupply of rental properties available to tenants around the nation,” she said.

Of those investors who sold an asset in the past year, 12.9 per cent believe they will never purchase an investment property again, with 38 per cent of investors adding it is likely they will sell within the next 12 months – up significantly from 19 per cent in last year’s survey.

Reasons for selling include concerns about higher taxes, levies, or duties (45.2 per cent), changes in tenancy legislation (43 per cent), and discussions of rental freezes or caps (42.9 per cent).

Despite the increase in investors exiting the residential property market, 56 per cent of respondents still believe that now is a good time to invest in residential property, though this is slightly lower than in previous years (58 per cent in 2022 and 62 per cent in 2021).

Furthermore, the survey highlighted the presence of first-time investors, with approximately 18 per cent of all property purchasers in the past year being newcomers to the market.

“This figure, while down from the 29 per cent reported in 2020, indicates a continuing interest in property investment among newcomers,” Ms McDougall said.

Among these first-time investors, 93 per cent acquired existing properties (a slight drop from 96 per cent in the previous year), and 6.4 per cent opted for new or off-the-plan properties (a notable increase from 2 per cent the previous year).

Investors exit Victoria and Brisbane

The report highlighted the mass exodus is being most acutely felt in Melbourne (24.8 per cent), Brisbane (23.3 per cent), and regional Queensland (16.5 per cent).

The increased exodus can be attributed to various factors, including strengthened renter protections against retaliatory actions like eviction and rent hikes, as well as the establishment of minimum housing standards in Queensland and Victoria to ensure rental properties meet safety, security, and functionality criteria.

Moreover, Victoria’s land tax policies are contributing to the investor departure.

In a significant move, the Victorian government announced in its state budget that it would reduce the tax-free threshold for land tax from $300,000 to $50,000, effective from 1 January 2024.

Ms McDougall said both states have pushed “the most punitive and wide-reaching legislative reforms in the country surrounding tenancies and taxation in recent times”.

“Among the motivations for investors selling, the most common cited by 47 per cent of respondents was governments increasing or threatening to increase taxes, duties, and levies, making property a less attractive asset to hold,” Ms McDougall said.

[Related: Victoria’s land tax grab will hurt property owners]