Mortgage debts mount as investors desert property market

Some major shifts are emerging in the national property market, with more mortgages in arrears, investors deserting the market and a shift in the league table among states viewed as presenting the best capital growth potential.

For the sixth consecutive quarter, the value of mortgages in arrears by 90 days or more has risen. It is now sitting at $23.4 billion, as some borrowers struggle to keep up with their repayments under the pressure of the 13 interest rate hikes.

While this figure represents just 1.03 per cent of all mortgages, it is now firmly above the 2019 pre-Covid average of 0.91 per cent, based on new APRA quarterly property exposures statistics.

Owner-occupiers continue to be over-represented in the arrears data. The APRA June quarter data shows the value of non-performing owner-occupier loans is now 1.07 per cent of all owner-occupier loans on the books of all authorised deposit-taking institutions (ADIs).

While this is still low, it is a bigger share of loans than non-performing investor loans, which represent 0.86 per cent of all investor loans.

Despite the debt concerns, home-owners are usurping investors as rental properties become increasingly scarce.

The 2024 PIPA Annual Investor Sentiment Survey found that even more investors sold a property over the year to August than they did last year, with about 65 per cent of these former rental properties being purchased by homeowners rather than investors.

PIPA Chair Nicola McDougall said the sell-off of investment properties around the nation is continuing unabated and is fuelling fears of an even tighter rental market, with higher holding and compliance costs as well as new property taxes to blame.

“This year’s survey found 14.1 per cent of respondents sold at least one investment property in the past year – an increase from 12.1 per cent last year,” Ms McDougall said.

Survey respondents indicated they had sold at least one dwelling in Brisbane (26 per cent up from 23.3 per cent last year), Melbourne (21.7 per cent down from 24.8 per cent last year) and Sydney (14.9 per cent up from 8.9 per cent last year).

When it comes to investors selling in regional areas, the number one location was Regional NSW (10.5 per cent similar to last year) followed by Regional Victoria (9.32 per cent up from 6.4 per cent last year) and Regional Queensland (7.4 per cent down significantly from 16.4 per cent in the 2023 survey).

“At a state or territory level, Queensland experienced the most investor sales over the past year at 33.4 per cent but this was down from 39.7 per cent last year, followed closely by Victoria’s 31 per cent, which was similar to last year, and NSW on 25.4 per cent, which was up from 19 per cent last year,” Ms McDougall said.  

 Of those investors who sold over the past year, nearly 65 per cent indicated the holding period was less than 10 years, with a staggering nearly one in five saying they sold an investment property that they had owned for less than three years, according to the latest survey results.

When asked which reasons contributed to selling one or more of their investment properties over the past year, survey respondents indicated it was predominantly due to increased general holding and compliance costs such as insurance, minimum housing standards, property management fees, etc. (44.1 per cent) followed by increased land tax or government charges (35.4 per cent) and to reduce total debt exposure (32.9 per cent).

Perhaps unsurprisingly, Ms McDougall said, survey respondents indicated that Victoria was the least accommodating state or territory for property investors in the nation, followed by the ACT, and NSW, which were all seen as being anti-property investment.

“At the other end of the spectrum – by a sizeable margin it must be said – investors believe that Western Australia is the most pro-property investment state in the nation,” she said.

Investors seem to be recognising that Melbourne offers future capital growth potential – even though its market has been the most depressed of any capital city in the nation over the past year – with 26.2 per cent of survey respondents indicating it was the best place to invest right now, followed by Perth (25.1 per cent) and Brisbane (17.8 per cent). Regional Queensland is the best regional market to invest, according to this year’s survey results.

“Last year, investors indicated that Perth was the capital city with the best investment prospects – and they were right with property prices in the Western Australian capital the city market leader over the past year,” Ms McDougall said.

“Brisbane’s third placing in this year’s survey is its worst for many years.”

Rental pressure driven by reforms

Myriad rental reforms and new property taxes over the past few years have increased holding costs for investors, which has left them with no choice but to increase rents – a situation contrary to the supposed intentions of state government intervention into the rental market.

When asked what their action would need to be if governments continued to increase costs, 39.1 per cent of survey respondents said they would have no choice but to increase rents to help subsidise some of these increased total operating costs, followed by having no choice but to increase rents to help subsidise all of these increased operating costs (24.1 per cent) and highly likely to increase rents (17.2 per cent).

“The continual changing of the goal posts by various levels of government – masquerading as tenant-friendly policies – is continuing to negatively impact property investment sentiment as well as rental housing supply,” Ms McDougall said.

“When asked what the biggest challenges or concerns were that might derail their property investment strategy, a whopping 86.8 per cent said it was government interference in the rental market such as regulation, rental caps or freezes, followed by a blow out in holding costs of the property (67.6 per cent) and inflation and higher interest rates (61.6 per cent).”