Investor regret: suburbs landlords are leaving

There has been a surge of investors selling rental properties, with landlord sales doubling in some suburbs – often after a decisive change in local taxes, rates and other costs.

Almost 10,000 NSW landlords have dumped their properties this year, with investment property sales doubling in some areas amid soaring holding costs.

The surge in investment property sales is expected to be another loss of critical rental stock for tenants, who have already been grappling with the lowest supply of available rentals on record.

SuburbTrends data showed many of the regions with the biggest rise in landlord sales were outer city areas, high-rise suburbs or regional markets near Sydney that were popular during the pandemic.

Landlord sales in these regions, including the northern beaches, Hills District, Blue Mountains and Sydney’s outer southwest, rose by more than 60 per cent year-on-year.

The biggest spike in investor sales was recorded in the Southern Highlands and Shoalhaven region, along with NSW’s far west – landlord sales in both regions doubled annually.

Parramatta recorded a surge in investor-owned property sales.

Other significant markets for landlord sales were high-rise precincts with a larger supply of newly-built units, including Parramatta, Liverpool and Chatswood.

“I think the alarm bell has started now,” said SuburbTrends analyst Kent Landner.

“There’s always a natural number of people selling rentals, but the thing that is not normal is that significant spike.”

Investment experts attributed the increase in sales to recent tax changes and many investor owners rolling off cheap fixed rates that were secured when interest rates were at record lows.

The fixed terms had largely insulated the owners from the aggressive interest rate hikes of 2022 and 2023, but many of the same investors saw their interest repayments double once their terms recently expired.

Rises in rents were not enough to offset the increased mortgage costs, encouraging many landlords to call it a day and sell up.

Mr Lardner said landlords selling rentals were compounding some of the housing market challenges of high migration at a time of waning construction levels.

He added that those who argued rentals being sold were giving tenants a chance to buy a home were ignoring the extraordinary levels of migration.

“If a rental exits and goes to a wealthy new migrant, there’s just one less property for the existing renters in that area,” he said.

ABS figures showed roughly 34.8 per cent of new home loan commitments by value were issued to investors last year.

Mr Lardner said it was likely a similar proportion of landlord properties getting sold would be purchased by other investors and returned to the rental pool. In many instances, these will be sold vacant, and will be removed from the rental pool for at least a month irrespective.

Ray White economist Nerida Conisbee said the RBA would likely want more data before it cut rates. Picture: Tertius Pickard

Buyer’s agent and investment adviser Eddie Dilleen said Sydney had become a difficult market for investors since rates began rising.

“A common conversation we hear is that investors are selling because their rates have shot up to 7 or 8 per cent and their rental returns are terrible,” he said.

Mr Dilleen added that much of Sydney was too expensive for landlords and many of Australia’s other capitals were far more attractive markets.

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“So much of Sydney is high-end property and it’s hard to justify the expense when you can get the same level of capital growth somewhere else, without having to spend as much,” he said.

“Many of our clients are selling and investing in more affordable states. Others, they got a bit of equity in their property, now they’re selling because they want to see the cash.”

Investor Eddie Dilleen said rental yields in much of Sydney were “terrible”. Picture: David Swift

Ray White chief economist Nerida Conisbee said mortgage holders counting on rate cuts in the comings months to bail them out of trouble might not get relief as fast as they may hope.

Recent employment figures showing a strong labour market, coupled with increased spending in the housing market, would give the Reserve Bank pause for thought about cutting the cash rate too soon, Ms Conisbee said.

Mr Dilleen said he was not surprised that landlords in regions as the Hills District and Southern Highlands were increasingly selling up. “These are not good investor markets because of the higher prices and (comparatively) lower rents,” he said.

Agents told The Daily Telegraph that a higher supply of investor-grade stock for sale would give little boost to first-home buyers as the majority of home seekers in the market were second home buyers funding part of their purchase with equity from their old home. These buyers often outbid both investors and first-time buyers who typically had smaller deposits and were more constrained by interest rate rises.