Are higher interest rates forcing investors to sell up?

April 18, 2024

More landlords in Melbourne and Sydney are selling off their investment properties compared to a year ago, new research suggests.

PropTrack data shows the estimated share of home sales in Sydney during the December quarter that were investment properties was 35.2%, greater than the same period in 2022 (28.3%) and 2021 (28.9%).

In Melbourne, it has been a similar story. Investor sales made up 35.2% of properties sold in the December quarter, up from 26.9% a year ago and 27.9% in the corresponding period in 2021.

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The share of investor sales has risen in most capital cities, but higher interest rates may not be solely to blame. Picture: Getty

However, the sell-offs have coincided with more investor activity in the market generally, according to PropTrack senior economist Paul Ryan.

“There has been more investor activity in the market, both selling and buying. On net, we’ve seen more investors entering the market than investors leaving the market,” he said.

Rental property shortages have lured investors into the market over the past six months, keen to take advantage of the rising yields, Mr Ryan said.


Nationally, rents have increased strongly, by more than 11% over the past year.

“These rental shortages aren’t going to be alleviated in the short term, so I think investors can see that although interest rates are high now, interest rates might reduce in the future, and rents are likely to keep growing strongly.”

Why investors are selling up

Mr Ryan explained that a portion of investors is always leaving the market, mostly because they reach retirement age and the benefits of negative gearing end as their incomes decline.

“If you’re a landlord that’s held the property for a while and you’ve seen interest rates increase, quite good capital growth, and don’t expect maybe as much capital growth in the near term, that might make it a good time for you to liquidate your holdings,” he said.

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Melbourne has recorded the biggest increase in the share of investor sales, with industry professionals pointing to interest rates, maintenance costs and tax concerns. Picture: Getty

While Mr Ryan conceded higher mortgage costs might trigger some investors to sell, investor conditions were “quite positive” with no rate hikes predictions soon.

“The outlook for both rents and interest rates are positive for investors,” he said.

“Most of the discussion is just about the timing and quantity of interest rate cuts, potentially later in the year.”

In Melbourne, Barry Plant Essendon auctioneer Anthony Molinaro told a lot of investors were selling up due to higher rates or because their older properties required costly upgrades.

“We see a lot of investors coming off an interest only loan and going to principal and interest, who can’t afford to keep that going with their lifestyle,” he said.

“We’re also noticing investors selling that have got older properties requiring a lot more maintenance, as well as all of that new rental compliance that came in a couple of years ago.”




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