Are property investors getting out of the market?

With vacancy rates low and rents growing strongly, the market is crying out for more property investors, to increase rental supply and put downward pressure on demand.

But are investors getting out of, rather than into, the market?

There are mixed signals, according to Ray White Chief Economist Nerida Conisbee.

On the one hand, Ms Conisbee noted that while mortgage stress has “risen dramatically” over the past year, this has not led to an increase in forced sales by investors. “Mortgage holders are stressed but they are not yet so stressed that they are being forced to market,” she said.

On the other hand, Ms Conisbee said that with interest rates continuing to rise, some investors may sell properties that are no longer providing enough of a return. “If so, given that fewer investors are buying, it will result in even more pressure on rents,” she added.

Investor sales rose last year but have since fallen

Ms Conisbee said that as the cost of living continues to rise, many households are looking for cost savings. Selling the family home would be a last resort for most, but selling an investment property (particularly if it’s negatively geared) or a holiday home (particularly if it’s rarely being used) would be a more palatable option.

However, Ray White auction data suggests that not only are fewer owners of all types selling up, but the share of investor sellers has also been falling.

“This proportion of investors selling at auction peaked in August at 28%. In February it was 21%. Furthermore, the number of investors selling at auction was far higher in the months prior to when the downturn began and in the months following than it has been in the past six months,” she said.

“Investors that went to market appear to have taken the opportunity to sell close to peak, in anticipation of the downturn. Fewer are selling now given that prices have come back, but also because rents have risen so much, thereby providing a buffer for higher mortgage costs.”

Lower prices means lower deposit requirements

While some investors have exited the market, others have happily collected those fast-rising rents Ms Conisbee mentioned.

At the same time, prices have fallen in many markets over the past year, reducing the deposit requirement.

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