Low capital gains and the large increase in holding costs are prompting more residential property investors to bail out of inner Melbourne and Sydney markets, data from CoreLogic shows.
The portion of investor-owned listings has ballooned to 60 per cent across Melbourne city over the three months to the September quarter, up from 56.7 per cent from the previous quarter and a sharp jump from the 50.9 per cent share a year ago.
Investor exodus gathered pace in Melbourne amid higher holding costs due to rate rises and tax policies. Graham Denholm
Tim Lawless, CoreLogic research director, said the lacklustre capital gains and the new tax rules in Victoria likely sparked the sell-off, which could continue in the coming months.
“I think this reflects the relatively weak growth outcomes we’ve seen across Melbourne, and it looks like that’s set to remain at least for the rest of the year with stock levels pushing higher and getting to above average levels,” he said.
“There could also be a little bit of a backlash from the state taxation policies that could be disincentivising investors.”
The investor exodus gathered pace in the past three months and there were 205 rental properties listed for sale in Melbourne city alone – a 7.9 per cent jump from the previous quarter.
The portion of investor-owned listings also increased across Geelong, Whittlesea-Wallan, Melton-Bacchus Marsh, Glen Eira and Casey South after ex-rental listings surged in the past three months.
Investor-owned listings now account for 34 per cent of all new listings in Geelong, up from 32 per cent during the three months to June. In Whittlesea-Wallan, it increased by 4.4 percentage points to 32.7 per cent, and by a similar amount to 44 per cent in Glen Eira.
During the same period, the volume of investor-owned listings had surged by 10 per cent in Geelong, it was up by 27 per cent in Whittlesea-Wallan and by 68 per cent in Glen Eira.
Melbourne-based real estate agent and Barry Plant Yarra’s Edge branch manager Geoff White said the volume of investor-owned listings would likely increase in the coming months.
“A lot of landlords are finding it tough to hold on to their investment properties at the moment because of high mortgage repayments and the additional compliance costs due to the recent state policies,” he said.
“At the same time, there’s hardly any capital growth, in some cases, values have gone backwards, so there’s very little incentive for landlords to hold on to their assets.”
Melbourne’s apartment sector has largely lagged the broader market performance in the past five years according to CoreLogic.
Apartment values in Melbourne city lifted by just 1 per cent in the past three months, and are still 0.6 per cent lower compared to a year ago. Over the past five years, values have fallen by 1.2 per cent.
Similarly, across the Whittlesea-Wallan area, units rose by 2.7 per cent in the past three months, but only gained 0.9 per cent over the past year. In the past five years, values lifted by just 4.8 per cent.
In Yarra, apartment prices increased by 1.1 per cent over the past three months and were up by 2.8 per cent over the year. However, values languished over the past five years, adding just 1.4 per cent.
Mr White said the Victorian government’s recent policies could deter investors from entering the Melbourne market.
The state recently cut the tax-free threshold for land tax from $300,000 to $50,000, imposing new yearly flat fees and increasing the rate of tax payable on properties over $300,000 by 0.1 percentage point.
The government would introduce legislation to expand the Vacant Residential Land Tax, which applies only to inner and middle Melbourne residential properties which are unoccupied for more than six months a year.
Victoria is also planning to impose a 7.5 per cent levy on Airbnb properties.
“The return on investment is quite poor because of all these increased costs,” Mr White said. “Between high mortgage repayments and extra tax, property investing here is increasingly unprofitable.”
In Sydney, investor-owned listings also climbed in the inner city, Ryde and the eastern suburbs in the past three months, rising by 17 per cent, 35 per cent and 29 per cent respectively.
Of the 463 new listings in the inner city, 266 were owned by investors. In Ryde, 113 out of 268 were ex-rentals and 93 out of 216 in the eastern suburbs.
Sydney-based real estate agent and BresicWhitney chief executive Thomas McGlynn said more investors were planning to sell in the coming months.
“We’re definitely still seeing a large increase in the number of investors looking to sell compared to a year ago, which has doubled in our books,” he said.
“I think there are a lot of investors who haven’t come to market yet, but many are thinking about selling and calling us about it. Generally, when you see a large number of inquiries, you’re going to see more investment properties come to market, which we’re expecting later this year or early 2024.”
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