Investors have been selling up ahead of expected reforms set to be announced by the Albanese government in the Budget.
Australia’s rental market has been bleeding homes as mum and dad investors cash out of their properties ahead of looming changes to capital gains tax and negative gearing.
New analysis of quarterly property sales data revealed landlords dumped a record 22,640 rental homes over the past three months, with 4,865 of the sales occurring in Sydney and 5,565 in Melbourne.
About 21 per cent of every home listed for sale in both Sydney and Melbourne over the period was a previous rental, according to the FoundIt report, which described the volume of sales as a “flood”.
“The 4,865 ex-rentals leaving Sydney’s rental market this autumn are 4,865 properties that may never return as rentals,” the FoundIt report said.
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The biggest landlord exodus in Sydney was reported in the CBD and inner south, north shore and Parramatta. In Melbourne, it was inner areas such as Docklands and Southbank, and the city’s west.
Areas such as Parramatta in Sydney have a higher volume of investor sales.
It comes as the Albanese government has talked of wide ranging tax reforms set to be announced in next week’s federal budget, which would likely increase the amount of tax charged to property investors.
The reforms are expected to include the replacement of current capital gains tax discounts for investors with a possible indexation system, along with tweaks to negative gearing.
FoundIt head of research Kent Larnder said the proposed reforms may have encouraged marginal landlords, those already struggling with the cost of their investments, to sell up.
“There is a genuine fear of the changes,” he said. “It may be an irrational fear, but it is reshaping the assets people buy.
“A lot of investors are not wealthy. Those not sure about their jobs and the cost of living may be bringing forward their sales.
“The triple whammy here is interest rate rises and the (fuel) crisis. It’s a time of great uncertainty. Some people may be responding by cashing in their chips.”
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Investor sales have risen in the Sydney CBD.
He noted that some of the investors selling in boom markets like Perth and Brisbane were likely cashing out after making a considerable capital gain, but it was a different story in parts of Sydney.
Many of the Sydney areas with the highest volume of rental home sales were those with low rental returns, meaning landlords had to spend more of their income to support their investments.
Investors in Parramatta offloaded 572 rental homes over the three months to May and a similar amount of rental homes were sold in the CBD and inner south and the north shore.
The FoundIt report measured 122,360 national residential sale listings advertised between February and May and matched them with five years of rental advertising records from licensed real estate agencies.
A property was considered an “ex-rental” if its address appeared on records as an agency-managed rental before it was listed for sale.
FoundIt head of research Kent Larnder said investors were fearful of the proposed changes.
Two Red Shoes mortgage broker Brett Sutton said the tax reforms would hit renters hardest.
He pointed to a national poll by Money.com.au in April that showed 61 per cent of investors would pull back from new purchases or sell under the new tax changes.
Mr Sutton said he doubted renters would be buying these homes.
“The uncomfortable truth is that a majority of renters are not in a position to buy,” he said.
“Lending serviceability requirements, stamp duty, and the ongoing costs of homeownership mean that for a large portion of the rental market, the choice isn’t ‘rent versus buy’ – it’s ‘rent or have nowhere to live’.
“If investor activity contracts and rental stock shrinks, those people wear the consequences.”
Electrician turned Sydney buyer’s agent Michael Kowalczyk, with wife Nicole, has 18 properties and said he was yet to offload any of his properties but could understand why some investors were selling.
The founder of Tailored Property Group said those who had been considering selling their investments at some point in the next few years may be deciding to get ahead of the changes.
Michael and Nicole Kowalczyk have a sizable portfolio and said they would wait to see how the changes took shape before deciding how to react. Picture: Richard Dobson
“They don’t want to be in a position where they are at the mercy of whatever the changes are. They’re getting out while they can still get the capital gains (discount),” Mr Kowalczk said.
He noted that if the current tax regime was grandfathered in for existing investors it was likely few of these investors would sell. “Restricting investing won’t solve the underlying issue in the housing market, which is that we need more supply.”
SQM Research director Louis Christopher said tenants were already grappling with a low supply of vacancies.
“Without a significant increase in new housing supply and/or a stabilisation of population growth rates, it is likely that rental pressures will remain elevated throughout 2026,” he said.
Mr Christopher told media earlier this month that gutting negative gearing and capital gains tax discounts risked increasing Sydney and Melbourne rents by 20 per cent.
Rethink Investing CEO Scott O’Neill said more investors may consider other assets outside of residential real estate. Picture Thomas Lisson
Rethink Investing CEO Scott O’Neill, an accomplished investor with a sizeable property portfolio, said he expected investors to respond to the changes by purchasing more alternative investments like commercial real estate.
Sydney-based investor Nathan Birch, who owns circa 350 properties, said he expected most investors to respond with rent increases if negative was removed.
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