Profitable sales and low vacancies sustain investor interest
Investor involvement continues to play a significant role in Australia’s property market, with approximately one in seven Australians owning a rental property.
Over the past year, investors have accounted for their highest proportion of new lending since 2017, a trend attributed to lower mortgage rates and persistent rental market tightness.
Rental vacancy rates remain low by historical measures, resulting in heightened competition for available properties, ongoing rent increases, and improved gross rental yields. Concurrently, rapid growth in home prices – particularly in Adelaide, Brisbane, and Perth – has ensured that most investor sales have yielded profits.
Nationally, the proportion of profitable sales is at its highest in at least 10 years. Even in Sydney and Melbourne, where price growth has been less pronounced, nine out of 10 and four out of five investor sales, respectively, have resulted in gains.
With inflation now within the Reserve Bank of Australia’s target range, market expectations point to at least one more interest rate reduction either later this year or early next year. In this context, continued tightness in the rental market is expected to support ongoing investor participation.
Long-term trends in property investment
According to the PropTrack Terri Scheer Investor Report, the proportion of households investing in property has increased over the past four decades. In the 1978/79 financial year, 4.1% of tax filers reported rental income. By 2022/23, this figure had risen to 14.1%, though it has remained relatively stable since the early 2010s, following a peak in 2013/14.
Compared to other countries, Australia’s rate of individual property investment is high, as corporate and government ownership is more prevalent elsewhere.
Among property investors, ownership is typically limited to one or two properties. Around two-thirds of investors hold a single investment property, and a further one-fifth own two. Larger portfolios are uncommon, with only 4% of investors owning more than four properties, and roughly 1% holding more than six.
Australian Taxation Office data indicates a marked increase in the proportion of investors aged over 60, rising from 14% in the early 2000s to 27% in recent years. The share of investors under 40 has declined, shifting from the largest to the smallest age group among investors since 1999/2000.
As older investors retire, some may divest their rental holdings, although increased workforce participation among those aged 65 and over – now at 16%, compared to 5% in the 1990s – may slow this trend.
Investor preferences by location
Inner city areas of Sydney and Melbourne, along with their surrounds, remain popular with investors, resulting in a high proportion of investor buyers in these markets. These areas have large rental markets and strong tenant demand.
More affordable regions, such as Wyndham, Tullamarine, and Melton in Melbourne’s west; Blacktown and St Mary’s in Sydney’s west; Ipswich in Brisbane’s west; and Kwinana and Armadale in Perth, are also attracting significant investor interest, often due to concentrated new housing development.
Profitability of recent investor sales
Over 90% of investment properties sold in the past year achieved prices above their original purchase price, reflecting the impact of home price growth during and after the pandemic, especially in smaller capitals.
Since March 2020, prices in Brisbane, Adelaide, and Perth have risen by more than 90%. In contrast, Melbourne has experienced more subdued growth, particularly following the Reserve Bank’s rate increases, but more than four in five investor sales there have still been profitable.
“Most sales happening today will have benefited from the rapid home price increases during the pandemic, as well as the years following in the smaller capitals,” said REA Group executive manager of economics Angus Moore. “Investors selling in the smaller capitals – Brisbane, Adelaide and Perth – have nearly all seen profits on their sale.”
Following the Reserve Bank’s rate reductions in February, May, and August, conditions remain favourable for investors. While rent growth has moderated compared to the peak periods of 2022 and 2023, it continues at a steady pace. Tight rental markets and elevated tenant competition are expected to underpin further growth in rents.
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