‘Risky’: Sydney suburbs where investors will lose most money

Buying an investment property will burn a $17,000 a month hole in the wallet of landlords in some Sydney areas and it’s likely to worsen the rental crisis. See the worst suburbs to be a landlord.

Soaring interest rates have turned Sydney’s housing market into a dead zone for property investors at a time when they are urgently needed to supply critical rental accommodation.

Alarming research has revealed new investors would be saddled with extreme holding costs of up to nearly $17,000 a month if purchasing rentals in the current market, despite record rises in rents.

It’s a burden many new investors cannot pay even with the support of negative gearing tax concessions that permit the expenditure to be claimed as a loss on their tax, housing experts said.

And this has meant property investments have become unattractive and out of reach of many of the mum and dad-type investors who supply the housing market with the bulk of rentals.

It’s also their participation in the market that is needed to pull Sydney out of what’s become the worst rental shortage in a generation.

Sydney has the lowest rental returns in the country.

Part of the reason that being a landlord has become so expensive is the staggering imbalance between rents and the required mortgage repayments at current home prices.

Analysis of PropTrack rent and price data showed an investor purchasing a unit at the Sydney median of $750,000 would pay about $4600 in mortgage repayments.

That’s if they were charged the average investor loan rate of 7.2 per cent and used a 10 per cent deposit – largely the norm among investors.

The same unit investor could expect to earn nearly $2500 in monthly rent, leaving them with $2000 in repayments to pay out of their own pocket each month.

House investments would be even more costly. Repayments on a house bought at the city median of $1.32m would be just over $8000 a month but the typical rent would be $3000, leaving $5000 to be paid by the landlord each month.

Finder.com.au home loans expert Sarah Megginson said these costs and other factors made investing “risky” and “expensive” for new landlords.

“As a property investor, there’s so much more you have to consider than just the loan repayments,” she said, noting investors were also paying council rates, water charges, repair costs and more.

Among suburbs where at least 20 per cent of residents rent, southeast suburb Kensington and inner west suburb Strathfield were the costliest to be a house landlord, requiring nearly $17,000 in monthly out of pocket expenses once rents were factored in.

New apartment investors would need to pay more than $4000 in monthly mortgage costs after receiving rents in Manly, Rozelle, Balmain, Neutral Bay and 25 other suburbs.

Ray White chief economist Nerida Conisbee said these costs would be too heavy for new investors to bear and most would consider investing elsewhere or into cheaper asset classes like shares.

“Negative gearing would help, but it wouldn’t be enough,” she said. “In the past, some investors would probably be prepared to hold on in the hope of getting capital growth on their investments but that hasn’t been in the Sydney market for some time.”

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Figures from MCG Quantity Surveyors showed “remote investing”, where property investors purchase far from where they live, has accelerated for the third year running.

The average distance between where landlords live and where they are investing has reached 857km.

MCG director Mike Mortlock said more needed to be done to encourage investor purchasing in tight rental markets like Sydney to increase the supply of rental housing.