First homebuyers are snapping up rentals as three states show signs of investor sell-off

Ceyhun and Danielle Guengoer just bought their first home in Melbourne. It used to be a rental.

For Mr Guengoer, the experience had been 60 per cent excitement, 40 per cent fear of having a large mortgage.

“You get, like, very dark thoughts, such as ‘what happens if I lose my job? What happens if this and that?'” he said.

“But I am proud and, you know, it’s a huge thing.”

The couple have a three-year-old daughter, and Mr Guengoer said he had expected owners to want to sell to a young family.

“I had maybe a very romantic idea of shaking hands with the owner and saying: ‘Thank you so much for giving me your home, I will treat it with respect’,” he said.

“We have been put back to reality that it’s about hard cash and money, and this is a business for a lot of people.”

It’s a business that increasing numbers of investors across three states appear to be getting out of.

Active bond data (a proxy for the number of rentals in a market) suggests that in Victoria, Western Australia and Queensland, more rentals could be returning to owner-occupier hands.

Rental numbers fall across three states

In Victoria, rental bonds fell by more than 10,400 in the first three months of the year, and 15,600 in the space of a year.

In Queensland the number fell over 14,000 over the two years to March 2024, and Western Australia saw a fall of over 20,000 since January 2021.

The Property Investment Professionals of Australia (Pipa) 2023 Annual Investor Sentiment Survey largely supports the findings.

Among respondents who had sold a property in the past year, 40 per cent had sold in Queensland and 31 per cent in Victoria.

Only 9 per cent had sold in Western Australia, however, and Australian Bureau of Statistics (ABS) finance data shows investor borrowing in WA and QLD remained strong, possibly reflecting some exiting while others jumped in.

Twenty per cent of investors had sold in NSW, where the number of active bonds have appeared stable over the past couple of years.

The leading reasons investors surveyed by Pipa gave for selling included government increasing or threatening to increase taxes, changes to tenancy legislation and rising interest rates.

A spokesperson from WA’s Department of Energy, Mines, Industry Regulation and Safety said more investors moving back into short-stay holiday accommodation after the pandemic may also have contributed to the fall in active bonds there.

The Guengoers believe the movement of homes from investors to owners is good, but would prefer it happened because of policies helping first homebuyers, such as tax benefits or the waiving of stamp duty on a wider range of properties.

Talk of Victorian investors selling up is rife, with investor groups blaming interest rates, increased land taxes, and the scrapping of no-fault evictions.

The state government is also consulting on raising minimum rental standards that could place new obligations on landlords from October 30.

The less investor-friendly landscape likely helped the Guengoers in another way.

CoreLogic’s head of research, Tim Lawless, said ABS data showed the number of investor loans over the last year was down 6.6 per cent in Victoria compared with the previous year, while first homebuyers made up 29.4 per cent of borrowing in the year to April, a percentage only beaten by WA and ACT.

Prices were also falling in Victoria while most of the country rose.

• The median price in Melbourne sits at $783,205, 0.6 per cent down on three months prior.
• Sydney by comparison rose 1.1 per cent in the same period to hit $1,170,152
• Brisbane rose 3.7 per cent to $859,240
• Adelaide rose 4.7 per cent to $767,974
• and Perth rose 6.4 per cent to $757,399.

Investor sells entire Victorian portfolio

One investor exiting is Simon Rowland, who sold all five of his Victorian investment properties in the last four years.

In a world of higher interest rates, he said rental returns were too low to justify the admin and maintenance, and two years of increased land tax bills were enough to make him to sell.

He said the end of no-fault evictions also contributed to his decision, as he faced situations like five students living in an apartment that was only supposed to have two, and where repairs often stretched beyond normal wear and tear.

“I just didn’t want all this noise in my life anymore and I don’t want people constantly ringing me, telling me that I’ve got to repair something, and the tax bills were just going up and up,” he said.

Mr Rowland said investors were being used by the Victorian government to fund its high debt.

The value of Mr Rowland’s rentals roughly doubled in the time he held them, although his profit was lower after capital gains taxes and the repayment of mortgages.

Mr Rowland’s son, Luke Rowland, is a mortgage broker in Melbourne. He had seen a fall in investors buying in Victoria, and a rise in those looking out of state.

Tenants were also increasingly purchasing their rentals from their landlords.

He said this used to happen once or twice a year, but in the last six months, he had been involved in 10 such transactions.

“I had three calls within 24 hours last week, from different clients to purchase off their landlord,” he said.

Demand and supply fall in unison

Property Investors Council of Australia chair Ben Kingsley warned of consequences if too many landlords sold up, including less rental choice and rising rents.

The true impact is unclear.

Australian Bureau of Statistics (ABS) 2021 census data shows the average size of an owner-occupied home is slightly larger than rentals, suggesting every time a landlord sells to an owner occupier, demand actually falls marginally faster than supply.

However, ongoing analysis of ABS data by housing policy group YIMBY Melbourne suggested 59 per cent of renters had one or more spare bedroom, compared with 85 per cent of owner-occupiers, suggesting an investor sell-off may worsen the situation for renters.