Victoria has lost 20,000 rental properties in the past 18 months, a significant drop attributed to higher interest rates, increased costs from new rental standards, and higher taxes on property investors, all compounded by a nationwide cost-of-living crisis. While rental data in other states has not shown the same dramatic decline, Australia’s real estate market is witnessing shifts in property ownership, reshaping the sector.
Victoria’s Rental Stock Decline
Rental bond data reveals that the number of rental properties in Victoria decreased by almost 4%, dropping from 676,791 bonds in March 2023 to 652,766 in September 2024. This marks a notable difference compared to states like Queensland and New South Wales, where rental stock has either remained stable or showed slight increases. The sharp decline in Victoria’s rental stock has raised concerns about reduced rental options, potentially driving up rents.
Kelly Ryan, CEO of the Real Estate Institute of Victoria, warned that the shrinking rental market could lead to fewer available homes, escalating rental prices, and limiting choices for renters. However, AMP Chief Economist Shane Oliver indicated that in the short term, properties sold by investors would likely either be purchased by other investors or owner-occupiers, mitigating immediate rental pressures. It is only if this trend continues long-term that rental prices could be impacted significantly.
Investor Withdrawal and Rental Market Dynamics
The reduction in rental stock signals a withdrawal of investors from the market. Yet, recent data shows that investor interest is starting to rise again after a lull, with the value of new loan commitments for property investors increasing by 26% year-on-year by September 2024. Despite the dip in investor activity in Victoria, the national property market remains relatively stable, with investors beginning to re-enter.
Challenges for Smaller Agencies
Smaller property agencies, which rely heavily on rental management revenue, are facing the brunt of this shift. Some agencies in Victoria have experienced a dramatic decline in their rental property portfolios, with reduced property management fees due to a lower volume of rental listings. Charlotte Pascoe, CEO of Stockdale & Leggo, noted that some rent rolls had seen an attrition rate of around 15%, and this trend hasn’t been fully replaced by new investors entering the market.
Consolidation and Shift in Market Share
Larger real estate agencies, however, have been better positioned to weather the storm. Ray White, for instance, saw an 8% year-on-year increase in the number of properties under management in Victoria, despite the state’s overall reduction in rental stock. As a result, consolidation is occurring, with smaller agencies being forced to sell out or merge with larger firms.
National Implications
This situation in Victoria is reflective of broader trends in the national market, where the supply of rental properties is not keeping pace with population growth. In New South Wales, for example, rental stock is growing slower than the population, and in Queensland, areas like the Gold Coast are seeing investors selling to owner-occupiers, especially first-time buyers.
The real estate market in Australia is clearly evolving, with investor activity shifting, a potential shortfall in rental properties, and increasing pressures on both landlords and tenants.
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