Investors Selling – Opportunities for Savvy Buyers

Feature in Australian Financial Review – Read Article

Increasing costs, surging management expenses, and new government regulations have pushed property investors to their breaking point, prompting many to consider selling their investment properties.

Real estate agents and mortgage brokers report being inundated with inquiries from mum and dad investors and retirees who find it increasingly difficult to justify owning an investment property due to rising expenses and hassles.

The latest data from CoreLogic, which monitors property markets, reveals a significant surge in properties listed for sale by investors, especially in Melbourne and Sydney, even during a traditionally quiet period.

Despite noteworthy rental increases, these gains fail to offset the higher interest rates and other expenses incurred by property owners.

This situation could be a boon for prospective buyers with available funds. Phoebe Blamey, director of Clover Financial Solutions, suggests that the sell-off by investors might present excellent opportunities for cashed-up potential investors, first-home buyers, and downsizers who have been struggling to find suitable properties. She points out that those with low borrowing costs could take advantage of robust rental markets.

According to Tim Lawless, CoreLogic’s research director, while rents have indeed gone up, the rise in mortgage repayments far exceeds the increase in rental income across various regions. For example, an investor with a 10 percent deposit who bought a property a year ago may have seen their mortgage repayments increase 8.5 times more than their rental income during the same period.

The discrepancy between rising costs and rental income has put many property owners in a difficult financial situation.

Charlotte Pascoe, chief executive of real estate group Stockdale & Leggo, emphasises that this crisis has been brewing for years, and it has now reached a critical point. Many property owners, who heavily rely on rental income to cover mortgage repayments, have faced increasing pressure since governments imposed rental controls during the COVID-19 pandemic.

Investors continue to leave the market despite record-low vacancy rates and declining building approvals. Sahil Bhasin, co-founder of Bricks & Mortar RE, notes that the pressure on investors worsens, leading many to sell their properties. First-home buyers often pick up The properties being sold, resulting in reduced rental supply amid growing demand from students and skilled migrants.

In Victoria’s south-west, where numerous investors own houses, cost pressures are mounting, leading to an increase in property sales, according to Matt Turner, mortgage broker with GSC Finance Solutions. Proposed caps on rental increases and new land taxes imposed by the Victorian state government further exacerbate the situation.

Lawless points out that even with above-average rental growth and relatively low rental vacancy rates, the number of investors selling continues to rise. The analysis shows that inner-city areas of Melbourne and Sydney, which are popular with investors, have a higher proportion of apartments compared to the capital city average.

For instance, in inner Melbourne, where over 60 percent of dwellings are apartments, rents have increased by approximately 18 percent in the past year. However, the additional income from rentals is still outweighed by the higher mortgage costs. A similar trend is observed in Sydney’s city and inner south regions, where median property values are around $1.1 million.

In conclusion, property investors facing financial strains are increasingly selling their properties due to rising costs that surpass rental income growth. This presents an opportunity for savvy buyers, especially first-home buyers and downsizers, to enter the market during a time when rental demand remains strong.

However, the situation also raises concerns about the shrinking rental supply and its potential impact on tenants in the affected areas.