Investors rush to dump costly homes

The new financial year has been greeted with an exodus investors from the housing market.

The start of the new financial year has prompted a quick spurt in sales by investors, with their post July 1 timing ensuring any capital gains tax will sit in the 2024-2025 tax year.

Ray White calculated 35.8 per cent of its sellers across Australia last week were investors, which was a higher investor exodus than June when it averaged 30.2 per cent.

It was the highest weekly percentage since March.

Investor buyer numbers sat at 25.8 per cent in the first week of the financial year, and 21.7 per cent, so an overall big dip in investor properties.

Recent NSW sales by Ray White include the $485,000 sale to an owner-occupier of a two bedroom, one bathroom 108 sqm Merrylands apartment, currently tenanted at $500 per week reflecting a healthy 5.36 per cent gross yield.

SYDNEY, AUSTRALIA: NewsWire Photos: APRIL 02 2024: A general stock view of a for sale sign on a home in the North Shore of Sydney, as Australian house prices hit record high for fifth consecutive month, making it increasingly difficult for new home buyers to get into the property market with the added cost of inflation. Picture: NCA NewsWire/ Gaye Gerard

But there was no profit for the Newman St vendor as it had last sold for $510,000 in 2015.

Its rent had picked up following the pandemic-induced rental boom since it was offered at $440 a week in early 2020.

Its outgoings included strata fees at $769 per quarter and council at $346 per quarter. There was a nice price gain when the two bedroom, two bathroom apartment at Mt Druitt, fetched $420,000 through Laing & Simmons.

The 112 sqm space is currently rented at $450 a week, reflecting a 5.57 per cent gross yield. It was up from $330 in early 2021 having been bought in mid-2020 for $340,000.

At Lalor Park, a three-bedroom one-bathroom fibro on a 651 sqm Northcott Rd holding fetched $1,001,000 through McGrath, currently tenanted at $600 per week reflecting a 3.12 per cent gross yield. Last sold in 2016 at $635,000, its selling agent Monique Layoun said it had the potential for a granny flat.

Stuart Wemyss, host of the Investopoly podcast, recently advised that the bulk of investment returns for most investors depended on the property’s future capital growth.

He suggested property returns are not that sensitive to changes in property holding costs, although over the past four years, all property holding costs, excluding mortgage interest, have increased to between 30 and 35 per cent of the gross annual rental income.

Wemyss says returns are a lot more sensitive to interest rates.

At interest rates of 5.5 per cent, the internal rate of return will be 15.5 per cent, but move the rate to 8 per cent and the internal rate of return drops to 11.1 per cent.

“The key to success lies in investing in the right property – one with attributes that can drive substantial and perpetual capital growth.”

Buyers should look for evidence of past growth; a strong land value component; and undervalued geography, he said.

Wemyss added it was prudent to minimise property costs by engaging an insurance broker while quickly overseeing maintenance.

Originally published as Investors rush to dump costly homes