Property investors are copping a lot of flak recently as rents increase. You only need to look at social media posts that landlords are seen as greedy and mercenary when it comes to rental increases. With the Queensland govt recently announcing a cap on rental increases, there will be repercussions, because renters aren’t the only ones hit by the rising costs.
Most property investors are not financial moguls, but everyday people working hard to get ahead financially by building a property portfolio. In Australia, 1.5% of investors hold 1 investment property, 18% hold 2 investment properties, 9.7% of investors hold 3, 4, or 5 investment properties, and 0.8% (or 19,895) hold 6 or more investment properties.
Of the 2.22 million Australian property investors, 54% are negatively geared during the 2019-20 financial period, claiming a net rental loss for the year. (figures from ATO).
What problems are plaguing the Aussie property sector?
Investors are also being hit hard by what is happening in the economy. We had to do some work on one of our rental properties, and the quote for maintenance was 40% more than six months ago. Add increasing interest rates, which are higher for property investors and higher stamp duty costs, it’s not feasible to go backwards financially, so something has to give.
Despite putting the rent up twice, we were losing money. What this means to the rental market is less housing available for rent. One of the solutions for managing the rental crisis is to encourage and support more people to invest in property. I empathise with renters.
I know what it is like to struggle to make ends meet. It was not long ago, I was without a job, my wife was about to give birth to our daughter, and we had very little coming in.
But if govts and banks continue to penalise investors, more will leave the market. With all the changes going on – land tax, negative gearing regulation changes – investors are bearing the brunt of it. For many investors, we are just mums and dads, employees, business owners and people working to get ahead. Today, investor confidence in the government is low.
With more regulations to protect tenants than investors, Australian property investors are bearing the brunt. We will see more investors pull out of the market. While people are calling for the government to fix the rental market problem, they don’t have the capacity to build affordable housing, but they can make the investing space more palatable and secure for investors. By encouraging private investors to take up the slack, we could help more people.
How can the situation be remedied?
Most investors I know are not the ‘rich’ person, they are like me; mum and dad investors building a future for our families. As investors, we are not bottomless pits – we do our best to provide quality homes for people to rent, but also to ensure we do not go broke doing it.
We need to find ways to encourage more investors into the market, and have fairer and equitable ways to balance the needs of tenants and investors. Right now, the current model is forcing our hand, which means less investors get into the market and many will leave.
- Stable regulation of laws – The constant talk about reforms and regulations relating to property investment needs to settle. Until it does, the property space will see many more people selling up, because without certainty, there is no confidence.
- Banking reforms – Investors should pay the same interest rates as owners/occupiers. It seems investors are penalised for building financial security and providing private rental stock. There also needs to be a decrease in loan buffers to encourage more mum and dad inventors whose borrowing capacity has been severely impacted with interest rate increases.
- Stamp duty – This needs to be addressed, as it currently has a significant impact on investors. I recently forked out $22k stamp duty for a $590k investment.
Colin Lee is the founder and CEO at Inspire Realty. Lee is a property investor with seven properties in his portfolio.