Investors offloading properties throughout Australia

Investors across Australia are offloading their properties amid a seriously weakened rental market, with apartment listings surging across capital cities. Soaring vacancies and widespread rental discounting have squeezed investors’ cash flows to the extent that almost two in every five landlords are in a position of financial stress, particularly in the Sydney and Brisbane CBDs, during April and May. The apartments have often been recently vacated, but amid rising concerns over the recession effects on the country, some investors believe it is prudent to get rid of their investment properties ASAP.

The increase is being led by Sydney, which has seen a 39% increase in new stock over the last four weeks according to Domain data. Perth is close behind, with an 37% jump, with Melbourne (27%) and Brisbane (15%) lagging behind a bit.

Competition for tenants has further intensified as short-stay landlords switched properties into the long-term rental market, leading to the owners of 820,000 rental properties being stressed, analysis by Digital Finance Analytics for The Australian Financial Review shows. Another 120,000 plus are under severe stress. A property is considered to be in stress for its landlord when it has been vacant for more than two months and rental incomes are insufficient to cover running costs.

Units and apartments were 1½ times more likely to be stressed than houses, while rentals bought within the past three years were twice as likely to be stressed.

Digital Finance Analytics principal Martin North said the high degree of stress was surprising given the current low borrowing costs.

“I’ve never seen this level of investor stress in the past,” Mr North said, “It’s a perfect storm thanks to COVID-19, the previous massive run-up in investment properties, fall in rental income, collapse of Airbnb demand and no inward migration.”

The areas with the highest proportion of stressed investors were all in the apartment-dominated Sydney and Melbourne CBDs. More than eight in 10 investors in Sydney’s Rushcutters Bay and Ultimo were stressed, with 1377 severely stressed. In the Melbourne CBD and western Melbourne, more than three out of four landlords were stressed with 1918 investors under severe stress.

While apartment rentals were weak, a total investor wipeout was unlikely, AMP Capital chief economist Shane Oliver said.

“Investors are unlikely to default en masse as they can opt to freeze their mortgage repayments. But the risks are still there” Dr Oliver said.

So what can you to help secure your investment during these times? If you currently have tenants, it’s time to talk to them (maybe take them out for a coffee). Discuss how they’re going, and if they’re short-term, discuss what incentives you might offer to keep them on for another six months or so until you feel more secure (ie. a rent reduction, etc). We recommend talking to a financial advisor as soon as possible if your investment property is currently sitting empty and you feel that this will cause you undue stress. Of course, some people may be fine if their investment property remains tenant-less for a little while longer — do what you think is best for you.

Written: 29 June 2020, Updated: 4 August 2020

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