Property investors are selling up!
Nationwide, the number of new listings for investor-owned residential properties has nearly doubled since December, with more than 5,000 properties put up for sale in the past three months, according to data from CoreLogic.
This has brought the total number of investment properties listed for sale to 10,542.
The increase in listings is likely due to some landlords looking to ease the pressure of rising interest rates by offloading assets.
Sure the RBA has paused it's interest rate hikes in April, but investor-owned listings now account for 28.9% of new stock on the market, up 1.9 percentage points from December.
While this is still lower than last year's peak of 35%, it is higher than the long-term trend.
CoreLogic research director, Tim Lawless, suggested that a growing number of investors may be facing cash flow challenges, prompting them to sell their properties.
He added that although rental income has increased due to record-low vacancy rates in most areas, it hasn't been enough to offset the rise in mortgage repayments.
In Sydney, the volume of investor-owned listings has more than tripled to 2,030, accounting for 33.8% of all listings, the highest level since last July.
|Volume of new investor-owned listings Feb||Portion of new investor-owned listings* (%)||Increase in volume since Dec||Increase in volume since Dec (%)|
Source: Corelogic and AFR
Meanwhile, Melbourne and the ACT have seen ex-rental listings more than double and climb to 2,114 and 219, respectively.
Other state capitals have seen listings increases of between 41% and 80% in the same period.
Uncertainties and fears of further interest rate hikes are also driving some investors to sell their properties now before the situation worsens.
Of course, fear is a powerful emotion that drives property cycles and investors tend to be most fearful near the bottom of the cycle when most of the risk is known - just as they are most courageous and optimistic at the peak of the cycle when the risks are greatest.
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Currently, some investors who are feeling the pinch fear that if they wait too long to list their properties, there will be fewer buyers as the interest rates rise.
Despite the sharp increase in rents, the 10 consecutive rate hikes on mortgage costs would still leave most investors with a massive shortfall, said Lawless.
For instance, in Sydney, rents have increased by 11.8% in the past year, adding an extra $315 each month in rental income.
However, over the same period, an investor with a $500,000 mortgage on the average variable rate would pay about $835 extra each month on their investment loan, resulting in a $520 deficit.
Lawless stated that highly leveraged investors would face significant cash flow challenges despite the strong rental conditions, adding that we could see a rise in motivated listings as more property owners find it difficult to service their loan repayments.
Now I understand that some investors are experiencing cash flow challenges, however they must remember that property investment is a long game and despite the 10 straight interest rate increases from the RBA, property prices have not only stopped falling, but they appear to be on the rise.
Sure there may be more rate hikes ahead, but our analysis suggests there is light at the end of the tunnel and once interest-rates peak (and that may not be that far off), and once inflation peaks (and that's probably already happened) consumer confidence will return and the market will reset as a new property cycle begins.
So have the property markets bottomed out – are we moving into the next phase of the property cycle?
It's too early to tell but the property markets will soon rest and a new cycle will begin.
But don't expect a rapid recovery - the next stage of the cycle is the stabilisation phase, but capital city dwelling prices are likely to be 2-3 per cent higher by the end of the year.
However there is no end in sight for our rental crisis and rents will continue skyrocketing this year and with all the banks predicting interest rates to fall next year, some investors will regret their decision to sell their properties right near the bottom of the market.