Property investors returned to the market in a big way in 2023 as rising property prices and tightening rental vacancy rates lured investors back.

Despite a 1.3% decline in the value of new investor loans during December, over the year investor lending surged 20.4% to sit at the highest level since August 2021.

By comparison, owner occupier lending fell 5.6% during the month, sitting 7.4% higher compared to a year earlier, according to the latest lending data from the Australian Bureau of Statistics.

ABS head of finance statistics Mish Tan said investors now accounted for more than one third of all new lending.

“The composition of total loan activity has changed since the data was first collected in 2019,” Dr Tan said.

“The proportion of loans to investors has increased from 27.3% in December 2019 to 35.5% in December 2023.”

PropTrack senior economist Paul Ryan said tight rental markets across the country were encouraging investors back into the market.

“The re-emergence in investor activity in 2023 heralds good news for the overall health of the market,” Mr Ryan said.

“This will help to drive more new construction, which will slowly rebalance supply and demand in the rental market.”

The national rental vacancy rate reached 1.1% in December last year, lower than the 1.3% recorded the same time the previous year, according to PropTrack.

Weighing on vacancy rates was a slowdown in home building activity, which failed to keep up with Australia’s booming population, which grew by more than 620,000 people in the year to June 2023.

As a result, rents have been on the rise, with the median rent on realestate.com.au growing 11.5% to $580 per week during 2023.

Property investors back in action

Real estate agents and mortgage brokers have reported increased investor activity, but say there are still issues holding some investors back.

RENTAL MARKET

Rents have been on the rise, with the median rent on realestate.com.au growing 11.5% during 2023. Picture: NCA NewsWire / Jeremy Piper


Jellis Craig Managing Director and incoming CEO Andrew McCann said investors had been returning and looking for properties to purchase and place into the rental market.

“There has been constant talk about the competition in the rental market, the improvement in rental returns and yields and the tight nature of the rental market,” he said.

“The flip side to this is that we’re still seeing a number of investors leaving the market due to the increased costs to hold property and increased taxes and compliance.”

“We’ve seen more property being sold off our rent rolls for those purposes, so I would say there is more replacement happening than a growing investor pool.”

SYDNEY AUSTRALIA - NCA NewsWire Photos MARCH 22, 2023: Dozens of Sydneysiders are pictured lined up outside an open-for-inspection rental apartment in Surry Hills.  The rental crisis remains one of the key issues of the 2023 NSW state election.  Picture: NCA NewsWire / Nicholas Eagar

Renters face fewer options, with the national rental vacancy rate reaching 1.1% in December last year. Picture: NCA NewsWire / Nicholas Eagar


Starting from this year, Victorians are set to pay higher land taxes and will face new charges on vacant homes and investment properties.

State and territory governments around the country also announced a range of new rental rules last year that have been designed to improve renters’ rights but will also increase compliance for landlords.

With more certainty around the future of interest rates, Mortgage Choice broker Terri Unwin said she was seeing prospective property investors coming back.

“I’m seeing more people that I spoke to two years ago about investing, who then put it off, coming back now that things have settled down,” Ms Unwin said.

She said homeowners and property investors had put their investment plans on hold during the interest rate hike cycle and the 2022-23 housing downturn.

“Many homeowners are now in a better position equity-wise, so some are now looking at an investment property,” she said.

Kollosche Managing Director Michael Kollosche said there were very few asset classes that outperformed property over the long term.

“Property is always going to be hunted after by investors,” he said.

New home building activity hasn’t been kept up with Australia’s booming population. Picture: Getty


“When you look at the metrics, there’s a deficit between new dwellings and net migration and that’s going to continue to drive demand and prices up.”

What it means for renters

The increase in investor activity should add more rental properties to the market and help slow rent increases, but it’s unlikely to be a quick fix.

Mr Ryan said renters would continue to find the market difficult in the short term.

“The number of available rentals looks to remain low in the near-term,” he said.

“While rent growth has slowed, we expect the high level of rents will persist and further growth will continue.”