According to modeling by CoreLogic, even though the rental market in Sydney is highly competitive, the significant rent increases have not kept up with the rising mortgage costs in any council area, resulting in new investors being in a worse financial position by potentially thousands of dollars per month.
A Sydney investor who purchased in March would spend $334 more weekly on mortgage repayments for a median-priced dwelling than if they bought it three years ago. By comparison, the median weekly rent raised $127 between March 2020 and March 2023, defecting mortgaged landlords $207 worse off.
Investors in the Ku-ring-gai council area had the most extensive deterioration at $871, as mortgage reimbursements climbed by $1047 per week, while rents increased by $176.Investors in Hunters Hill and Woollahra council areas were left with losses of $692 and $577, respectively, as those areas followed.
CoreLogic modeling reveals that despite an extremely tight rental market in Sydney, the surge in rental prices has not kept pace with the increase in mortgage costs in any council area. As a result, new investors are finding themselves in a more unfavorable situation, with potential losses of thousands of dollars per month.
For instance, an investor who purchased a median-priced property in Sydney in March would now be spending an additional $334 per week on mortgage repayments compared to someone who bought the same property three years ago. Nonetheless, during the same period, the median weekly rent only increased by $127, leaving landlords with a mortgage at a loss of $207.
The council area with the highest deterioration was Ku-ring-gai, where mortgage repayments increased by $1047 per week, and rents went up by only $176, resulting in a loss of $871 for investors. Hunters Hill and Woollahra council areas followed with a loss of $692 and $577, respectively.
According to Eliza Owen, the head of Australian research at CoreLogic, the interest rate increase in all areas of Sydney has exceeded the rental rate growth. As a result, investors can only partially recover their rising mortgage expenses through rent hikes.
According to Owen, renters may need help to afford the total increase in mortgage payments passed on by investors, which means that some investors, particularly those who bought properties in the recent past, will be negatively affected.
According to Brendan Coates, the director of the economic program at the Grattan Institute, as mortgage rates have increased, it is likely that more investors are losing money and thus qualify for negative gearing tax benefits. The Australian Greens had estimated that negative gearing would reach $97 billion over the next ten years, but their analysis did not consider raising interest rates or increasing rents.
Coates believes the cost of negative gearing tax breaks would be much higher now. Although a rise in investor selling may decrease rental availability, if first-home buyers purchase these properties, it could also reduce the number of renters in the
market.
According to him, if sold investment property was sold to an owner-occupier, it could positively impact homeownership rates. Even though some were selling, it might be a positive development.
