New data shows real estate investors are leaving in droves

PROPERTY investing is becoming a thing of the past in the wake of Federal Budget tax reforms, according to a leading industry body.

The Australian Bureau of Statistics’ Lending Indicators for the June quarter, released on Friday, found the number of new investor loan commitments had fallen by 8.6 per cent over the period, which was the largest fall since the September quarter in 2022.

Cate Bakos, chair of Property Investment Professionals of Australia, said investor activity had mostly disappeared since the removal of negative gearing benefits for established property, which had triggered a structural shift that is already reshaping the housing market.

“Established property investors – outside of self-managed super funds for a very brief window – have pretty much left our market since May 12,” Bakos said.

“Maybe two per cent still exist. Aside from SMSF purchasers up to August 10, the only client I’ve had any investment activity with recently was an international buyer who wouldn’t have received negative gearing anyway.”

Bakos said the latest ABS figures only captured the first half of the post-Budget period, which means the full impact is still to come.

“This year is like no other. We’re going to see some unfortunately stunning results,” she said.

“And remember, Friday’s numbers only reflect half of the investor response. We haven’t even seen the full impact yet.”

Early results from PIPA’s Annual Investor Sentiment Survey show the same dramatic shift with many investors indicating a pivot away from property entirely.

“Many are indicating they will redirect capital into shares or superannuation with a large number also saying they won’t buy new property, despite the government’s intention to push investors into the new-build sector, because they prefer established,” she said.

Bakos said the affordability shock created by the removal of negative gearing was the core driver of the investor collapse.

“This isn’t about sentiment. It’s about maths,” she said.

“One of my client’s potential holding costs doubled overnight once negative gearing was axed, with their borrowing capacity slashed from $850,000 to around $530,000, which doesn’t buy a freestanding house these days.

“These numbers are not something that investors will simply get used to. Almost all simply can’t afford to invest in established property. That’s a fact.”

Bakos said the consequences for the rental market are already emerging, particularly in established inner and middle-ring locations.

Vacancy rates are likely to fall further, household formation is reversing as more people crowd under one roof, and displacement of tenants into more affordable outer-suburban or regional areas is accelerating, she said.

“The rental crisis we’ve been talking about for the past few years is about to be overshadowed by this calamity,” Bakos said.

“We’re already seeing rents rising again and with investors increasingly exiting the market as well as not buying in the same volumes, the pressure on tenants will intensify.”

Bakos said a very small cohort of wealthy contrarian investors may take advantage of the downturn but this would not offset the broader collapse in participation.

“We’ve seen the face of investing in established property change overnight,” she said.

“With stamp duty revenue set to fall as transactions dry up, and with rental stress worsening, governments need to understand what’s unfolding.

“This is a sledgehammer to the investor market and Friday’s data is the first official confirmation.”