Property investors walking, but better times may be on the way

Many real estate investors are frustrated and are voting with their feet, but a brighter horizon may appear soon.

Smacked around by interest rate rises, rule changes for renters and new tax pain, a significant chunk of Australia’s 2.2 million residential real estate investors have been walking away.

Some are simply cashing in after many years of solid capital growth, and deciding to diversify their assets for retirement, but many are fed up with feeling under attack, and it has added to the nation’s rental crisis by shrinking supply and inflating rents.

A recent report by Property Investment Professionals Australia noted that hundreds of thousands of rental properties had been sold in the past few years, with the “mass exodus” most acutely felt in Victoria and Queensland.

Separately, a buyers advocacy group said the Victorian government was treating investors like drug dealers, while this year the Greens unsuccessfully tried to slap a “two-year emergency rent freeze” on properties.

Add to that surging interest rates, Queensland’s failed attempts to base its state-based land tax on people’s real estate holdings nationally, and Victoria’s planned new taxes on Airbnb and vacant residential properties, and it’s understandable why some landlords are fed up.

Not another rate rise/rent rule/tax hit! Some property investors are not happy. Picture: iStock

PIPA’s research found the threat of governments increasing taxes was the biggest reason for investors to sell, while others worried about changing tenancy legislation and talk of rental freezes and caps.

However, some blue skies may appear on the horizon soon to ease pressure on investors’ biggest financial strain – the 60 per cent surge in interest rates since May 2022.

The dozen Reserve Bank interest rate rises have hurt investors with multiple properties the most, and even though many fixed their mortgage rates in recent years, a majority of those have now rolled off the mortgage cliff.

Rising rents have provided some relief, but an annual 15 per cent rent rise is just a quarter of the repayment rise.

And while investors get to claim bigger tax deductions for the higher interest costs, that only pays them back their own tax rate – typically between 34.5 per cent and 47 per cent.

Rates may rise again next week as the Reserve Bank of Australia meets on Melbourne Cup Day, and many economists predict a 0.25 percentage point increase in the cash rate to 4.35 per cent.

But in the next 12-to-24 months there is a good chance that rates will start falling again, potentially quite quickly if the economy really struggles. It’s unlikely we will see rents falling at the same time, so more money will flow into investors’ pockets.

Rents should remain high, as should prices, because of the hundreds of thousands of extra people landing in Australia each year – an estimated 500,000-plus this year alone.

That supply-demand equation supports strong demand for housing by both purchasers and tenants. New PropTrack research found Australia’s rental vacancy rate was a record low 1.1 per cent in September.

The reported property investor exodus should be over soon, as long as governments don’t get too trigger happy with more punishing rules for landlords.

If commonsense prevails and demand stays strong, investors may again see real estate as the great investment vehicle it has been for decades.