Investors use boom property market to reap gains

Despite historically strong yields and decade-low rental vacancy rates, more than one in four homes sold in June belonged to investors.

More than one in four homes sold in June belonged to investors.

Despite historically strong yields and decade-low rental vacancy rates, more than one in four homes sold in June belonged to investors.

REA Group economist Paul Ryan said the finding was the result of the surge in property prices over the past 12 months, largely linked to low interest rates and fierce buyer competition for the limited number of properties available.

“While 2021 has seen investors pile into the market, this trend has been outweighed by the number of investors cashing in on strong market conditions and heading for the exit,” Mr Ryan said.

“Investors are likely to be selling to lock in gains after strong housing price growth over the past year.

“The recent trend of investors heading for the exit has been occurring despite attractive yields for residential property. The excess yield for property over benchmarks, such as the 10-year government bond rate, are historically quite high.”

Property prices climbed 13.5 per cent last financial year, according to CoreLogic.

The lion’s share of investors selling up were in Queensland, where 31.6 per cent of properties sold in June had previously been rented. In Western Australia, the figure was 21.2 per cent

Mr Ryan said the sell-up in these states could be linked to investor apprehension due to previous investment experiences.

“Regional market conditions in these states have been weak over the preceding several years, so strong conditions may have been what investors were waiting for in order to sell,” he said.

The portion of investment property sales in Victoria (26.36 per cent) was higher than in NSW (25.1 per cent).

The markets have each felt rental pressures – largely restricted to units – due to the prolonged Melbourne lockdown last year and the disappearance of overseas students and migration.

In the smaller states, one in five South Australian properties belonged to investors, while the number was only 13.7 per cent in Tasmania.

New investment activity has been low since the end of the 2018 boom, sitting well below the long-term average of around a third of purchases. This has begun to turn around in recent months, with May lending data showing a 13.3 per cent month-on-month increase in investment loans at $9.13bn.