WHY JANUARY COULD BE BRISBANE’S RENTAL RECKONING

I saw some statistics recently showing a spike in the number of landlords looking to sell their investment properties. The obvious question is, why? And I think this could be hiding a massive problem waiting for us in January. The recent budget changes largely favoured existing investors, with the negative gearing changes affecting only new investors. So why would existing landlords be heading for the exit? One explanation is the opportunity to crystallise capital growth before any future changes to CGT. The last 15 years have arguably been one-third good and two-thirds challenging, something we don’t talk about enough. Yet anyone who purchased before Covid-19 is still likely sitting on significant capital growth. Many investors have been watching the market and waiting for the peak.

The problem, of course, is that you only know you’ve reached the peak once the market starts to decline. But the bigger story isn’t that investors are selling. It’s what happens to those properties after they sell. For the past five years, many former investment properties have been purchased by owner-occupiers. With every one of those sales, another rental property can ultimately disappear from the market. If you understand the Brisbane property market, you know the fundamentals remain solid. There is simply too much demand and too little supply to suggest a major crash. Construction costs have already constrained new development. Now we potentially have another issue – not only are we failing to create enough new rental stock, we may also be depleting the stock we already have.

I believe this is a dormant problem waiting to erupt. And the recent budget potentially doubles down on the issue by discouraging new investment in established residential property at exactly the time existing investors appear to be selling. When a landlord sells an investment property with an existing lease, that lease survives the sale. If an owner-occupier buys the property, they generally need to wait until the lease expires before moving in. That creates a two-pronged problem. First, a rental property disappears from the rental pool. Second, when the lease ends, the existing tenant needs to find another home. And this is where the timing becomes important.

With a significant number of leases turning over around the beginning of the calendar year, combined with the potential impact of the budget changes, we may not fully understand the consequences until January. Only then will we see how many investment properties have actually left the rental market, how many displaced tenants are searching for new homes and what that additional demand does to an already severely constrained rental market. We keep counting the landlords who are selling. Perhaps we should be counting the rental properties that are disappearing. The real property story of the next six months may not be house prices at all. It may be what happens to rents when January arrives.