Property investor activity ramps up as those exiting sell for a profit
Property investors are flooding into the market, with 90 per cent of landlords selling out making a handsome profit | SEE THE TOP INVESTOR SUBURBS
Investors are jumping into the property market at the highest rate in almost a decade while most landlords who do sell up are making a profit thanks to rapid home price gains.
REA Group senior economist Angus Moore said investor activity had been strong in the past year, with the investor market busy on both the buying and selling sides.
“Rental markets are very, very strong at the moment, which makes it attractive for those looking to get in,” he said.
“For those who might have been in for a while, they’re sitting on, in many cases, very big capital gains, particularly in places like Adelaide, Perth and Brisbane where prices have roughly doubled in the past five-and-a-half years.”
Falling mortgage rates and tight rental market conditions were driving the increased investor activity, even as rental yields stabilised and rent growth, described as still solid, slowed following a modest increase in rental listings.
“We are starting to see the pace of rent growth slow down but rental market conditions remain very tight,” Mr Moore said.
“Availability is still very low, and rentals are still leasing quite quickly. That is still quite an attractive picture for investors and will continue to encourage activity.
“With markets expecting at least one further rate cut by the Reserve Bank and challenging rental market conditions persisting, strong investor activity is likely to continue over the rest of this year and next.”
A new report by REA Group’s research arm PropTrack and landlord insurer Terri Scheer found existing investors were more likely to be selling than they were a couple of years ago.
Investors who sold out recently were sitting on significant capital gains thanks to the rapid home price increases during the pandemic, which continued in recent years in the smaller capitals of Brisbane, Adelaide and Perth.
The report found that more than 90 per cent of investment properties sold in the past year sold for more than they were bought for, with the share of sales that were profitable sitting around the highest level on record.
Investors selling in Adelaide, Brisbane and Perth had nearly all seen profits on their sale.
Fewer investor sales had been profit-making in Melbourne, which had not experienced as strong price growth in recent years. But more than four in every five sales were still made at a profit in that market.
The report noted the rate of investor sales remained well down from the peak recorded during the pandemic, when many investors sold out.
Investor sales nationally as a percentage of rental stock were at 0.53 per cent.
Investors now make up their highest share of lending since 2017, with Australian Bureau of Statistics data showing they took out 37.6 per cent of all new home loans in the June quarter.
Mr Moore said the investor share nationally had been sitting at just below 40 per cent for the past 12 to 18 months, and was close to record levels in Queensland, South Australia and Western Australia.
Mr Moore said investor activity was likely to remain strong after picking up across most of the country in the past year.
“The number of new investor loans has risen solidly in the past two years, after a quieter period when the RBA started raising rates,” Mr Moore said.
“This means investors are now making up a substantial share of new lending.
“Rental market conditions remain very tight, and rents have grown rapidly in recent years. That’s likely encouraging investors to buy in.”
The top areas for investors
The most popular areas for investors included inner-city Sydney and Melbourne, and their surrounding areas, as well as more affordable regions.
“Inner-city Sydney and Melbourne are big, deep, liquid markets with a lot of potential renters and a lot of demand for rentals, so we see a lot of investors looking to buy in those areas,” Mr Moore said.
He said there was also a high volume of investor purchases in more affordable areas.
The report said areas like Wyndham, Tullamarine and Melton in Melbourne’s west, Blacktown and St Mary’s in Sydney’s west, Ipswich in Brisbane’s west, Kwinana in Perth’s southwest and Armadale in its southeast were experiencing a high degree of new investor purchases. Many were areas where new housing development was concentrated.
“These are more affordable entry points, so for some investors that is going to be a more attractive place to invest because you’re not having to make as large an investment as you might in somewhere like inner-city Melbourne,” Mr Moore said.
The PropTrack Terri Scheer Investor Report highlighted the top-performing suburbs for investors based on metrics including high capital yields, high rental yield and strong demand from renters.
“It does tend to be the more affordable parts of the cities that are performing well across these three metrics at the moment,” Mr Moore said.
“Given an environment of very challenging housing affordability, we have seen more affordable parts of the country perform a bit better over the past couple of years in terms of home prices.
“Those more affordable areas tend to have higher rental yields because they are a slightly more affordable entry point.”
The top performing suburb for investors owning houses in greater Sydney is Tumbi Umbi on the Central Coast. In Melbourne it’s Cranbourne South while North Booval in Ipswich came out on top for greater Brisbane. Evanston Gardens in Adelaide, Midvale in Perth and Isabella Plains in Canberra were the other top suburbs.
For units Lakemba came out on top of the rankings for Sydney, Notting Hill for Melbourne, Beenleigh for Brisbane, Brooklyn Park for Adelaide, East Cannington for Perth and Canberra city.
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