Why Investors Are Exiting Australia’s Property Market in 2024

Why Investors Are Leaving the Australian Property Market (and What It Means for You)

As the Australian property landscape shifts, many investors are facing new challenges, leading some to reconsider their place in the market.

Rental reforms, rising interest rates, and a shifting buyer sentiment are altering the market dynamics, creating uncertainty and prompting some to sell off properties.

This week’s insights cover the latest on why investors are leaving and how buyers are responding.

With the week ending 8th of November 2024, here’s a look into the current property market trends affecting investment, prices, and approvals across Australia.

Why Investors Are Exiting Australia’s Property Market in 2024

Skyrocketing Costs Are Driving Investors Out

It’s a tough time to be a property investor in Australia. According to the Property Investment Professionals of Australia (PIPA), recent rental reforms are causing some to rethink their investments.

Nicola McDougall, PIPA’s chair, highlights that rising costs are making it challenging for investors to stay in the market long-term.

Investor Exodus: The latest Investor Sentiment Survey revealed that 14% of respondents sold at least one investment property in 2024, a jump from 12% in 2023.
Impact of Rental Reforms in Victoria: In Victoria alone, 22% of investors have sold their properties in Melbourne over the past year, largely due to what McDougall calls “anti-investment” rental reforms.

McDougall explains, “Interest rate repayments have soared, with over 70% of investors reporting annual increases up to $60,000 on mortgage payments alone.”

This financial strain is pushing more investors out of the market, which may, in turn, worsen Australia’s current housing crisis by reducing rental availability.

Melbourne city skyline impacted by rising property costs and rental reforms

A Shift in Buyer Sentiment

While some investors exit, buyers seem more optimistic. API Magazine’s Property Sentiment Report Q3 2024 reveals that buyer sentiment has rebounded, with fewer buyers choosing to wait it out and more considering active investment in the coming months.

Key Findings on Buyer Sentiment:

Increased Confidence: The percentage of potential buyers adopting a “wait and see” approach has dropped from 39% in Q4 2023 to just 22%.
Return to Traditional Assets: A significant 29% of respondents plan to buy in the next 12 months, with renewed interest in traditional assets like houses, units, and apartments.
Falling Interest in New Builds: The proportion of those planning to build has fallen from over 10% last year to 6.8% this quarter.

This shift back to established property types shows a renewed confidence in traditional property investments.

Experts predict that property prices will continue to rise well into 2025, making this an encouraging time for buyers to enter or re-enter the market.

Property sale sign as investors exit Australian real estate market

Property Values Are Still Climbing

Despite some challenges, property values across Australia are still on the rise, though at a slightly slower pace.

CoreLogic’s Hedonic Index for October 2024 reported a 0.3% increase in national property values for the 21st consecutive month of growth since February 2023.

The smaller cities are driving much of this growth:

Perth: Up by 1.4%
Adelaide: Up by 1.1%
Hobart: Up by 0.8%
Brisbane: Up by 0.7%

Tim Lawless, CoreLogic’s research director, attributes this growth to affordability factors and high investor and first-home buyer activity.

“We’re seeing stronger market conditions among more affordable areas due to limited borrowing capacity and affordability issues,” says Lawless. He also notes that slower property value growth correlates with increased stock levels, meaning more properties are available for sale.

Apartment Approvals Lag Behind

While approvals for houses are ticking upward, approvals for apartments remain significantly low.

According to the Property Council of Australia, townhouse and apartment approvals rose slightly by 4.7% in September, following a sharp 13.5% decline in August. Despite this, Australia is still far from meeting housing demand, especially in urban areas.

Matthew Kandelaars of the Property Council warns, “Apartment approvals are nowhere near where they need to be.”

Over the past 12 months, only 56,186 apartments were approved compared to 102,323 in 2018. High construction costs, planning delays, and regulatory hurdles are limiting new apartment projects, leaving Australia’s housing targets unmet.

Though there is strong public support for high-rise apartments—over 40% of Australians favour it—a majority still prefer these developments outside their immediate neighbourhoods, according to REA’s latest Property Seeker Survey.

What’s Next for Property Investors?

If you’re considering your next steps in property investment, it’s crucial to weigh these market shifts carefully. The current environment demands a well-thought-out approach, balancing both short-term pressures and long-term opportunities.

Ready for a Personalised Approach?

Every investor’s circumstances are unique, and the strategies to thrive in this evolving market will differ. I’m here to help you explore what property investment could mean for you personally. Book a one-on-one conversation with me at the link below, or join one of our educational workshops on Properties in SMSF to learn how tailored property strategies can work for you.

Warm regards,

Rasti
Architect of Property Wealth

Disclaimer: This article is general in nature and does not take into account your situation. You should consider whether the information is appropriate to your needs, and where applicable, seek professional advice from a financial adviser.