The Domain preliminary auction clearance rate came in at 57% over the weekend, from 405 reported auctions. Of these, 230 properties sold under the hammer, 61 were withdrawn and 114 passed in. This is down from the 70% final clearance rate recorded for the same weekend last year and the 60% final clearance rate recorded last weekend. The REIV also reported another 556 private sales.
Ray White Victoria released some interesting data last week showing that 16% of buyers at their Melbourne auctions were investors, while 30.5% of sellers were landlords selling their investment properties. This supports what we are seeing on the ground, with significantly more investors selling than buying.
The investor exodus started in 2023 and continued into 2024, following changes to land tax, rising interest rates and changes to the Residential Tenancies Act.
Last year, we started to see this trend turn around. Investors were once again considering Melbourne due to the relative affordability of property compared with other capital cities around the country. However, since the Federal Government announced its proposed changes to negative gearing and capital gains tax in May, we have seen investor confidence take another hit.
The low level of investor activity is a real concern for renters if we continue to see more landlords selling than investors buying. The Federal Government is incentivising investors to purchase brand-new properties; however, I am yet to see much appetite from investors wanting to do this. What I am seeing instead is investors simply putting their plans on hold and not buying anything at all.
According to PropTrack, Melbourne rents increased by 3.5% over the June quarter, taking the median advertised rent to $600 per week.
I expect rental pressure to continue throughout the remainder of this year, particularly if the number of investment properties available for rent continues to decline. This will likely see rental yields improve as rents increase while property prices remain soft.
It will be interesting to see whether improving rental yields are eventually enough to entice investors back into the Melbourne market, or whether uncertainty around the proposed tax changes continues to keep them on the sidelines.
For investors prepared to look beyond the current uncertainty, there may be an opportunity in Melbourne. Property prices remain relatively affordable compared with several other capital cities, competition from other investors is low and rising rents are helping to improve rental yields. For investors with a long-term outlook, softer market conditions can also provide an opportunity to buy well before confidence and competition eventually return.
Have a great week.
Kim Easterbrook – Managing Director
