Victorian rentals dip as property investor sell-off heats up, benefiting homebuyers

Real estate investors in Victoria are accelerating the sale of their properties, leading to a decline in rental listings at an increasingly rapid pace. The number of active rental bonds, which serves as an indicator of the number of rental properties in the market, has decreased from 677,492 in September 2023 to 652,766 in 2024, representing a loss of 24,726 rental properties in the state within a year. This equates to a 3.6% drop in the total number of rental properties in Victoria.

The pace of selling also appears to be accelerating, with a reduction of 4,315 rental bonds in the three months to March 2024, followed by 7,820 in the three months to June, and 9,498 in the three months to September. This is the fastest rate of decline in rental bonds since records began in 1999. Quarterly rental bond data released by the Department of Families, Fairness and Housing (DFFH) shows that annual rental bond declines have only occurred three times, all of which were in 2024.

The investor sell-off is more concentrated in metropolitan areas. DFFH records indicate that metropolitan areas experienced a 4.2% annual decrease in rental bonds (equivalent to a loss of 23,108 rental properties last year), while regional areas saw a 1.3% decrease (equivalent to a loss of 1,588 rental properties). Despite the reduction in rental listings, rents in Melbourne have declined and vacancy rates have increased over the past six months, according to CoreLogic data.

However, the Property Investors Council of Australia has warned that the easing of the rental market is due to a decrease in international student numbers, and Victorian tenants should prepare for rapid rent increases if student numbers increase again. The investor sell-off in Melbourne appears to be good news for first-home buyers, as it coincides with the fastest decline in house prices of all major centers. According to CoreLogic’s Home Value Index, Melbourne house prices have fallen by 3% in 2024. Other capital cities with falling house prices are Hobart (down 0.6%) and the Australian Capital Territory (down 0.4%).

In other markets, investment activity remains hot—Perth house prices have surged by 19.1% in 2024, Adelaide by 13.1%, and Brisbane by 11.2%. In Sydney, house prices rose by 2.3% in a year. This starkly different trend means the median house value in Melbourne is now just over $774,000, about $116,600 cheaper than Brisbane, where the median house price is now just over $890,700. Adelaide has a median house price of $814,400, while Perth is at $813,000.

Despite the decrease in rental listings, rents are falling. Investor groups had previously warned that a reduction in rental listings would lead to rent increases, but this has not occurred. In fact, according to CoreLogic’s research director, Tim Lawless, rents are declining. “Melbourne rents fell by 0.4% in the second half of 2024, driven primarily by a 1.1% fall in unit rents, while house rents were flat over the past six months,” Mr. Lawless said. “At the same time, we are seeing rental vacancy rates rise and rental growth slow, suggesting that rental demand is also falling at the same time as rental supply is reducing.”

Melbourne’s rental vacancy rate has risen to 1.7%, up from 1% in March 2023 when overseas migration peaked. This brings the rental vacancy rate almost back to its pre-pandemic five-year average of 1.9%. Mr. Lawless said the rental property sell-off is likely due to a combination of factors, including high taxes, low yields, poor capital gains, and debt servicing challenges due to high interest rates. He said investors tend to pursue capital gains rather than rental returns. Investors have stated that they are selling properties in Victoria due to the threat of increased taxes, changes to tenancy laws, and rising interest rates.

“With Melbourne house values down 3% over the calendar year and 6.4% below their March 2022 market peak, investors appear to be attracted to better capital growth opportunities in markets like Western Australia and Queensland.” With net migration expected to slow further and an increase in average household sizes as communal households restructure, Mr. Lawless said demand is likely to continue to slow in 2025, helping to offset the impact of reduced rental properties. He said that as interest rates fall, more investors may consider the medium-term growth potential of Melbourne properties and their high gross yields relative to other markets. “However, high taxes, including high stamp duty and land tax, may continue to dampen investor appetite,” he said.

Although rents have declined in Melbourne over the past six months, CoreLogic data shows that rents are still up 5% year-on-year, placing Melbourne in the middle of the pack but below the national growth rate of 5.3%. Melbourne’s rental growth is also well below that of Perth (8.9% rent growth) and Adelaide (7.1%), but higher than Brisbane (3.6%) and Sydney (3.8%).

Property Investors Council of Australia chair, Ben Kingsley, said the downturn was driven by four main factors—investors selling properties due to high interest rates, increased land taxes by the state government to help fund the COVID recovery, tenancy reforms ending no-grounds evictions, and long-term investors now cashing out. He said the decline in rental bonds was “further proof that the Labor Government is making life harder for Victorian tenants by causing ‘an exodus of investors providing private rental accommodation in Victoria’”.

Mr. Kingsley said Victorian tenants were only being spared rent increases because the government had restricted international student numbers. However, he expected rents to rise rapidly if this restriction was lifted after the election. “As a tenant, I’m very concerned that we are going to be paying higher rents in Victoria in the short term,” he said. Anecdotal evidence from property managers and real estate agents suggests the pace of investor sell-offs has continued to accelerate since the end of September, Mr. Kingsley said. “If they are receiving four new listings a week, two of those are investment properties being sold.”

He said investors were buying properties in Western Australia and Queensland, where rental yields were higher, population growth was strong, and tax restrictions were fewer. Mr. Kingsley supported the Victorian government’s decision in October to cut stamp duty on new apartments, units, and townhouses, when Premier Jacinta Allan announced a 12-month concession allowing all construction costs to be deducted from the sale price when calculating stamp duty. “It’s a good move when you see it, but it’s a desperate move by the government, and the feedback they are getting from the developer market is that Victoria is not a good place to invest,” he said.