Australia’s property market is facing a significant shift, with more and more investors opting to sell off their investment properties.

The latest 2024 PIPA Annual Investor Sentiment Survey paints a concerning picture for the future of the rental market, with investors exiting faster than they are entering.

Rising holding and compliance costs, combined with new property taxes, are cited as the primary reasons behind the mass sell-off.

The impact of these changes is already being felt in the rental market, with experts predicting even tighter conditions ahead.

The investor exodus and its impacts

According to the 2024 PIPA Annual Investor Sentiment Survey, a notable 14.1% of investors sold at least one property over the past year, up from 12.1% in 2023.

Even more telling is that 65% of these former investment properties were purchased by homeowners rather than new investors, further depleting the supply of rental properties.

This represents a significant shift in the market, where rental properties are being taken off the market faster than they are being replaced.

Nicola McDougall, Chair of the Property Investment Professionals of Australia (PIPA), highlighted the gravity of the situation:

“This year’s survey shows a concerning trend—investors are selling off rental properties, and most of these homes are being purchased by homeowners.

When a rental property is bought by an existing homeowner, it’s effectively removed from the rental pool, reducing overall supply.

And with population growth outpacing new rental property purchases, we’re heading toward an even tighter rental market.”

The survey also showed that only 31% of the properties sold by investors were picked up by other investors, compared to 44% being purchased by existing homeowners and 21% by first-home buyers.

This shift in ownership structure is having a significant impact on the rental market, with fewer rental properties available for tenants.

Why are investors leaving the market?

Several factors are driving this exodus, and the survey sheds light on the top reasons.

The primary driver is the rising cost of holding and maintaining rental properties.

Investors reported significant increases in compliance costs, such as property management fees, insurance, and meeting new housing standards.

In fact, 44.1% of those surveyed indicated that increased general holding and compliance costs were the main reasons for selling.

Government taxes and levies are also taking their toll.

According to the survey, 35.4% of investors cited rising land taxes and government charges as a key reason for offloading properties.

McDougall was frank in her assessment of the situation, saying:

“Investors have had enough of being the golden goose for state governments.

They’re fed up with the constant barrage of rental reforms, property taxes, and increasing compliance costs.

For many, the numbers no longer add up, and they’re making the decision to exit the market.”

Surprisingly, despite the recent rise in interest rates, it was not a primary reason for investor sell-offs, with only 25.4% of respondents citing increased lending costs as their reason for leaving the market.

This highlights that the burden of compliance and taxes is having a more profound impact than even higher mortgage costs.

Where are investors selling?

The exodus is not uniform across the country, with some cities and regions seeing higher rates of investor sell-offs than others.

Brisbane has been hit the hardest, with 26% of investors selling at least one property in the Queensland capital over the past year, up from 23.3% in 2023.

Melbourne followed with 21.7% of investors selling, although this was a slight decrease from 24.8% in 2023.

Sydney saw a significant uptick, with 14.9% of investors selling in the past year, compared to just 8.9% in 2023.

Regional areas are also feeling the pinch.

Regional NSW experienced a steady rate of investor sales at 10.5%, similar to last year.

However, Regional Victoria saw a noticeable increase, with 9.32% of investors selling, up from 6.4% the year before.

In Regional Queensland, investor sell-offs dropped significantly to 7.4% from 16.4% in 2023.

McDougall attributes the high volume of sales in Queensland and New South Wales to a combination of strong market conditions and unfavourable policy settings.

She further noted:

“The Sunshine State has seen strong demand over the past year, which explains some of the sales volume.

However, in Victoria and NSW, where anti-investor reforms and new taxes have come into play, we’re seeing the full effect of governments pushing investors out of the market.

And it’s clear that Queensland learned from its land tax debacle last year, which likely kept investor sentiment more positive compared to other states.”

Fewer investors looking to buy

One of the more concerning trends from the survey is that fewer investors are looking to buy into the market.

The percentage of investors who believe now is a good time to invest in residential property has dropped to 45%, down from 55% in 2023, 58% in 2022, and 62% in 2021.

Only 24% of respondents purchased a property over the past 12 months, compared to 37% in 2022.

This is a stark contrast to the boom years, and McDougall isn’t surprised.

She said:

“High interest rates are certainly playing a role in dampening investor appetite.

But more importantly, it’s the constant political interference that is damaging investor sentiment.

Between new taxes, rental reforms, and tighter compliance requirements, many investors are simply being pushed out.”

The top locations where investors are still buying include Brisbane (24.4%), Perth (21.1%), and Regional Queensland (17.8%).

These areas are seeing more resilient demand, despite the challenges.

Rising holding costs and Government interference

Rising holding costs are a major pain point for investors, with more than 70% of respondents indicating they are now paying between $10,000 and $60,000 in additional mortgage interest annually, compared to when rates were at their pandemic-era lows.

In addition to higher interest payments, 36% of investors reported cost increases of between 11% and 20% over the past year for items such as land taxes, compliance upgrades, property insurance, and property management fees.

The survey also revealed that only 10.9% of investors are currently struggling with cash flow shortfalls, despite rising costs.

And most investors are not passing the full burden onto tenants.

McDougall highlighted:

“Despite what politicians and the media might say, most investors are absorbing the bulk of these cost increases.

Over half of the respondents indicated they’ve passed on just 10% or less of the higher costs to tenants in the form of rent increases.”

However, if governments continue down the path of introducing new costs and taxes, that may change.

A significant portion of investors (39.1%) said they would have no choice but to increase rents further if government intervention continues, with 24.1% saying they would need to fully subsidise increased operating costs through higher rents.

The future of the Australian property market

The PIPA survey paints a clear picture of an investor market under siege, with government policies contributing heavily to the disillusionment of many property investors.

And as investors leave the market, Australia’s rental supply will likely shrink even further, leading to tighter rental conditions and higher rents for tenants.

McDougall warned:

“If governments continue to make it harder for investors, they’ll be left with a shrinking rental market and skyrocketing rents. That’s not what tenants need, but it’s where we’re heading.”

Despite the challenges, there are still opportunities for savvy investors.

Areas like Melbourne and Perth, though currently experiencing soft conditions, are considered strong long-term bets by investors seeking capital growth.

As McDougall notes:

“Counter-cyclical investing has always rewarded those who look beyond the short-term market fluctuations.”

For now, though, it’s clear that Australia’s property investors are growing increasingly frustrated with government interference and rising costs, and until something changes, we may see even more investors exiting the market in the coming years.

About Michael Yardney
Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He’s once again been voted Australia’s leading property investment adviser and one of Australia’s 50 most influential Thought Leaders. His opinions are regularly featured in the media.