Rental property pool shrinks as investors exit market

The national rental property pool has been shrinking over the past five years as investors sell up and put their money elsewhere.

Melorin Kheradi and husband Gerard Marino, with son Sebastien, have just sold their four investment properties in order to buy their first family home. Picture: John Feder

An exodus of property investors has resulted in the largest shortfall of homes being bought to lease out in seven years, increasing the pressure on an already stretched rental market.

Smaller returns, tighter lending policy and a jostling between landlords and tenants for rights has caused many mum and dad property investors – who provide the majority of Australia’s rental stock – to sell and look elsewhere.

Over the past five to seven years, a clear trend has emerged nationally showing the portion of investors buying into the market is not keeping up with those selling, despite investor levels rising over the past six months.

This has inevitably caused the number of properties available to tenants to shrink.

New data from REA Group’s PropTrack cross-referencing sales data Real­estate.com.au’s rental listings has found it has not been enough to ease the property shortage that has attributed to rental vacancy rates taking a dive to decade lows.

Simon Pressley, head of research at investor buyers agency Propertyology, said in real terms, 20,000 fewer rental properties are being advertised nationally now compared to five years ago, despite Australia gaining an extra 1.5 million people. “Plain and simple, rental supply is a direct outcome of investor activity. It has always been that way. Since 2015, investor par­ticipation rates in this country have been well short of demand,” he said.

Melbourne, Sydney and Brisbane were most affected cities, showing the widest gap between those selling out and buying in, particularly over the past two years because of the lack of ­demand from overseas migrants and students, according to PropTrack economist Paul Ryan.

“City apartments have been the least performing asset class in Australian property over the past two years,” Mr Ryan said.

“It’s also been where demand from migrants is particularly important to investors. So although we don’t have the data on property types, I think it’s a fair stretch to say that much of what is being sold is units.”

Hobart, however, was one of the few locations where investor levels remained on par, attributed to the city’s lifestyle attributes.

Principal of Sydney Financial Planning Bill Bracey said capital city yields have been slashed over the past decade, down from 5 per cent to about 2 per cent. Many with capital were turning to the stockmarket, allocated pensions or managed funds to get better returns. “(Residential property) has a terrible yield and it seems to be very overpriced,” Mr Bracey said.

“As an investor, I could put my money in cash and get nothing or go to the stockmarket, which for most people is a scary thing. Or there is Bitcoin, but I think you may as well get around Rosehill Racecourse.”

Sydney couple Gerard Marino and wife Melorin Kheradi, 36 and 37, recently sold their four investment properties to buy their first family home. It was the only way they could get into the booming market after the bank was reluctant to lend to them mid-last year because of a perceived Covid and portfolio risk.

“All of our properties went up in price, including the one that we were looking to buy,” Mr Marino said. “We always wanted to invest in property for our children as Sydney is increasingly becoming about intergenerational wealth.”

Mr Pressley said real estate offices were being told by landlords that they were fed up with “over-­zealous” new rental legislation imposed by state governments.

“One can’t expect to meet ­rising demand requirements by constantly discouraging those capable of providing the rental supply. It’s not rocket science.”