Investor exodus threatens rental supply, REINSW warns
The Real Estate Institute of NSW has reported a sharp decline in investor activity, leading to increased rental pressure, urging government collaboration and data-driven policy reforms to boost rental supply and investment while protecting tenants’ rights.
Each weekend, the Real Estate Institute of NSW (REINSW) member auctioneers provide a coalface insight into the state of the real estate market.
Among all the research papers and data sources from which experts interpret what’s happening in the market, it’s often these insights that provide the most up to date, real-life context.
In recent weeks, our auctioneers have described the dangerous trend that everyone with a real interest in a healthy market has been concerned about.
Investors are deserting the market. Many already have. One leading auctioneer put it thus: “There are literally no investors in the market, with the clear exception being those on the selling side, which is about 30 per cent of my auctions.”
Others are seeing the same trend play out. In the Sydney auction market, anecdotally, investors currently represent nearly a third of sellers. The proportion of buyers who are investors is next to zero. It does not take a genius to work out what this means for rents.
The month-on-month decline in the number of private investors will clearly put upward pressure on rental values.
So how do we arrest this concerning trend?
The two most obvious solutions are to increase the supply of rental properties and to encourage investment in the residential property sector.
The former depends on multiple factors, some out of immediate reach. The high cost of construction continues to reverberate through various industries, but in the case of residential supply, the result is the same. We are not building enough homes.
Developers won’t develop if it makes no financial sense to take the risk to do so. New supply can’t keep up with demand, and there is no short-term fix here.
The second obvious solution is to encourage investment into residential property. This depends on government policy which should be informed by consideration of the perspectives, and real-world data, from the full complement of stakeholders.
Collaboration has been lacking to date but must be a mainstay of future rental policy.
Perhaps the recent interest rate cuts will have an impact. Whenever the cost of money goes down, it is typically viewed as good news for everyone. However, cheaper money means people are able to more easily service debt, so they can bring more money to the transaction.
Therefore, the most likely scenario arising from rate cuts is a rise in property values, which is not necessarily going to encourage would-be investors to buy.
The introduction of the NSW government’s tenancy reforms has coincided with decreased investment in the market.
Australian Bureau of Statistics data showed the number of new loans to investors in NSW fell by more than 2,500 in the March quarter compared to the December quarter, bonds held by Rental Bonds Online declined by 702 in April, and REINSW data showed Sydney’s vacancy rate dropped from 2 per cent in March to 1.6 per cent in April. The reforms have officially kicked off in May.
For those investors who don’t sell, it will be interesting to see if more switch to the short-term accommodation market, in which they have more control over how their property is protected, and can potentially access greater returns.
Ensuring they can keep pets and making landlords satisfy certain criteria to recover possession of their property may feel like a win for tenants, but this is quickly exposed as empty when those tenants are faced with fewer choices to find a home.
Nevertheless, we must protect tenants and their rights, and the success of the reforms will be evaluated on this basis.
REINSW strongly urges government and all stakeholders genuinely interested in tenants’ rights to closely monitor rental availability, affordability, and the number of tenant-landlord disputes in coming months, and honestly evaluate the reforms through a non-partisan, data-driven lens.
Based on this, we must all keep an open mind on the opportunities for improvement in the rental market.