The portion of investor-owned listings across Sydney ballooned to a record 39.8 per cent last month as the financial stress of meeting the large increase in mortgage repayments worsened, data from CoreLogic shows.
More investors were also selling in Melbourne, Brisbane, Perth and Darwin, while Adelaide and Canberra posted a slight dip.
More investors are selling up as the gap between rental income and mortgage costs widened. Peter Rae
“The motivation to sell this year is likely to have come from rapid increases in interest rates, where investors have inherently higher mortgage rates,” said Eliza Owen, CoreLogic head of research.
“When you look at the pressures around mortgages, investors may have the choice between offloading an asset that they’re maintaining on the side versus the roof over their head and the choice is pretty obvious there.”
Thomas McGlynn, chief executive of Sydney-based real estate agency BresicWhitney, said more investor-owned properties were likely to hit the market in the coming months.
“We’ve certainly seen a lot more landlords list their rentals for sale over the past month, and we expect that trend to continue as interest rates rise further,” Mr McGlynn said.
“We’re starting to see the effects of rising inflation and rising interest rates on investors who largely own one or two investment properties.”
The share of investor-owned listings increased to 32.7 per cent nationwide, the highest level in 12 months.
In Melbourne, the portion of ex-rental homes jumped to a two-year high at 36.2 per cent and climbed to a 12-month peak at 34.7 per cent in Brisbane.
Across Darwin, investor-owned listings blew out to 51 per cent, and in Hobart, they rose to 24.8 per cent, their highest levels in nine months.
“This is exactly what I expected to happen when interest rates relentlessly rose,” said Margaret Lomas, founder of Destiny Financial Solutions and a veteran property investor.
“While it is true that rents are going up, the rate of interest rate rises has resulted in a much higher increase to monthly repayments on investment loans than many investors can afford.
“Most investors are mum and dad investors – not wealthy people with cash surpluses.
“Many of them invested during low interest rate environments, and bought properties which covered their own costs – meaning that they didn’t need to and possibly could not have if they had to contribute to holding costs. Now holding costs on investment properties have become significantly negative, and most investors do not have the capacity to hang on.”
More investors are also selling up in Perth, where the share of ex-rental listings widened to 36.7 per cent, the highest since October last year.
While Adelaide and Canberra recorded a drop in the portion of ex-rental listings at 26.7 per cent and 32.3 per cent respectively, they are still substantially higher than their decade averages of 25.7 per cent and 27.7 per cent.
Ms Lomas said it had become nearly impossible to hold an investment property over the long term.
“Many investors are now looking at $1500 a month higher repayment on each investor loan they have, and this is an amount which is impossible to offset with rent increases,” Ms Lomas said.
“With tenants in fixed term leases, many investors face months before they can partially offset increased costs through rent increases, and now many states are talking rental increase caps.
“Investors looking to the future of their often small portfolios see times ahead where they will most certainly be unable to meet their investor mortgage repayments, and many are selling now.”
The gap between rental income and mortgage costs has widened significantly, despite large increases in rents in the past 12 months.
Across Sydney, mortgage repayments increased by $1402 in the past 12 months, but rents increased by only $363 on average, resulting in a $1039 cash flow shortfall each month according to CoreLogic’s calculations.
In Melbourne, investors face a negative cash flow of $709 each month, Brisbane $595, Adelaide $801, Perth $646, Hobart $582, Darwin $640 and Canberra $1025. Nationwide, the shortfall is now sitting at $714.
Perth suburbs Kwinana, Northbridge and Highgate topped the suburbs with the highest proportion of ex-rental listings, accounting for more than 71 per cent of all new stock in June.
In Sydney, Stanmore, Forest Lodge and Parklea posted the largest share of investor-owned listings in the city at 53.4 per cent, 52.9 per cent and 51.4 per cent respectively.
This coincided with the substantial increase in the cash flow shortfall, which is now sitting at $4132 each month in Stanmore, $1973 in Forest Lodge and $3187 in Parklea.
Evan Thornley, LongView executive chairman said that in addition to the rising mortgage costs, landlords were also hit with increased taxes on investment properties.
“We’ve got increasing land tax in a number of jurisdictions particularly Victoria, which is adding to the costs of holding an investment property,” Mr Thornley said.
“There’s also increasing regulatory and compliance requirements. So, the long term capital growth that’s available if you buy the right property is still there, but the costs and hassles of getting access to that capital gain are increasing.”
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