At a time when rental properties are already scarce, it is concerning as a property industry professional to hear reports saying investors are leaving the Victorian market.
There are numbers to back up this claim. According to the ABC, active tenancy bonds (aka the number of rental properties) in Victoria fell by more than 10,400 in the first three months of 2024, and by 15,600 in the space of a year. To add to this, investor lending in the state is reportedly down for the year by almost 7 per cent.
It is assumed the drop in rental property numbers has been influenced by the following factors:
High interest rates are making it difficult to service an investment loan
Additional land tax charges for Victorian property investors now apply
New rental property requirements make holding costs too high for some investors
In some cases, local governments are even considering further disincentives for property investors. For example, as reported in The Guardian, one councillor in Melbourne’s inner north has proposed doubling rates for rental property owners and slashing them in half for local owner-occupiers and businesses. This would happen as a way to improve owner-occupier rates.
Detractors say while this strategy may lead to a repositioning of supply, they wonder whether it would truly have the desired effect. There’s also the question of where home buyers with large enough deposits to buy in the area and replace investors would come from.
An initiative like this could backfire for renters as well, driving investors out of the market will further reduce the number of rental properties, driving prices up further and making saving to own a home even more challenging.
Managing the ‘pendulum’ swing of investors
It can feel as though investors in Victoria are being disincentivised, especially with a fresh round of minimal rental standards looming. If this is the case, then by default, so are property management agencies.
The reality is some real estate businesses are being impacted by a drop in local investors, while others are maintaining their rent roll figures and are still taking advantage of the upswing in rental prices, which is only now beginning to settle after four years of successive increases.
If your agency is being impacted by Victoria’s so-called ‘property investor drain’, you have a few options to explore. The first is working with your renters to help prepare them to be first-home buyers. As the ABC shared, instances of renters buying from their landlords are increasing, with one broker reporting ten such transactions over six months and three calls within 24 hours from clients seeking to buy their rental property.
If you have an investor client who decides to sell, having a purchase-ready renter can result in a smooth transaction and a commission fee for the agency. Partnering with a mortgage broker who supports first-home buyers can be a step to facilitate this result.
From there, conversations and education are important. Helping your rental property owner clients understand and manage the cost of their investments will enable them to hold onto them for longer. Reaching out to find out how you can support them is essential at this time.
Another option is selling your rent roll to focus on a different area of your business or to take advantage of changes in the market by purchasing a rent roll, giving you a more robust and predictable source of income.
From an investor perspective, those who are placed to make a purchase at this point in time may find they can ‘zig’ while others are ‘zagging’ and secure an investment at a competitive price. The Melbourne market is expected to “make a comeback” when interest rates drop, so investing with a long-term strategy in mind may pay off.