Property investors locking-in their gains while rental yields are ‘historically’ high

In his latest insights report, REA economist Paul Ryan found that while 2021 has seen more investors enter the market, “this trend has been far outweighed by the number of investors cashing in on strong market conditions and heading for the exit”.

Citing analysis done by realestate.com.au, Mr Ryan found that 27 per cent of properties sold in June 2021 had been previously listed for rent.

He suggested that this data is indicative of many property investors selling their assets in order to lock-in the gains achieved over the past year.

Mr Ryan said that “strong recent conditions may have been what investors have been waiting for to sell”.

While the share of new purchases by investors began to increase again in 2020, it remains at a low point relative to the past few years.

Mr Ryan attributed the gradual decline seen in the level of purchases made by property investors to new measures introduced by APRA in late 2014.

However, he added that, due to the limitations in how the level of investor activity in the market is identified, “the investor share of recent purchases is likely to be understated”.

Still, Mr Ryan emphasised that “the recent trend of investors heading for the exit has been occurring” alongside “historically quite high” yields for residential property.

Speculating that “spreads are not likely to remain this high for an extended period”, he pointed to time pressure as one of the forces pushing investors to sell.

Mr Ryan said that while price growth is likely to continue into the foreseeable future, he said that there’s little pressure for rents to keep up.

“New investor activity looks set to continue its growth in the second half of 2021, as conditions for investors remain favourable. But it will be interesting to track if more existing investors are planning to exit the market in the coming months,” he speculated.