Interest rate rises and red tape is leading investors to flee the market, new research suggests.

CoreLogic research released on Thursday found there has been an uptick in listings activity from residential property investors. 

As of May, total new listings added to the market were -20% below the previous decade monthly average across Australia, while new investor listings were only -2.9% lower than the previous decade monthly average.

In Sydney, Melbourne and Perth, investor listings for May were actually higher than the previous decade average.

The research found the proportion of investor listings on the market in May shot up in inner city areas, which are traditionally hotspots for investors.

Listings from property investors is highest in inner Sydney, where the decade average of new listings coming onto the market from investors is 38%. In May, listings surged to 57%.

CoreLogic head of research Eliza Owen said there could be a number of factors why this is the case, including interest rate rises.

"Based on average interest rates for investors, we estimate mortgage costs on a $500,000 loan will have increased $860 per month, to $3,213," Ms Owen said.

"While rents have risen at a record pace over the past few years, they generally have not risen as much as mortgage costs on a new loan.

"If the interest burden is becoming too high amid an already high inflationary environment, investors may be looking to offload their investment."

A recent survey conducted by Your Investment Property found that the number of property investors looking to sell was up 44% over the previous quarter (36% compared to the previous quarter's result of 25%).

Ms Owen said the rise in listings could also be attributed to investors cashing in on capital growth gains.

"If you look at a city like Perth, where the portion of investment sales surged in mid-2020 and remained high ever since, this may reflect investors finally getting some pay-off after a long period of decline in home values for much of the 2010s," she said.

'Straw that breaks the back of investors'

Analysis of ATO data from the Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA) shows that the net average annual number of people with rental property incomes has fallen 55% in five years across the nation. 

In the five years to 2015/16 the average increase in net individual investors every year was 66,000 nationally, but in the five years to 2020/21 this figure fell off a cliff to 29,600.

In the financial year 2019/20 investor numbers fell by 333.

PIPA chair Nicola McDougall said investors are fed up with the government restricting what they can do with their investment properties - like lending restrictions, rent controls or caps, and higher taxes.

“PIPA has been warning for nearly a decade about the negative impacts of market intervention on rental markets, starting with the APRA lending restrictions that came into effect in 2015, and now a variety of rent caps or controls,” she said.

“The ATO stats don’t lie, investors have already deserted markets around the nation – and especially in Victoria and Queensland – because they no longer have control of their assets.

“The negative annual result for investor numbers during the first year of the pandemic was the first time this had occurred since the GFC more than a decade before but is set to happen again sooner rather than later as investors sell up in droves.”

PICA Chair Ben Kingsley said constant attacks and financial imposts on investors has pushed the country into a rental crisis - particularly in Victoria.

“Never in my lifetime would I have thought that a government of the day could be that dumb to consider rental freezes, yet, the Victorian Labor Government is sounding a very clear message to mum and dad property investors – telling them your money is not required in Victoria, even though it has one of the lowest rental vacancy rates in the country,” he said.

He said the latest threat to investors is the Victorian Government considering rent controls, which could be the straw that breaks the camels back.

“We’ve had 12 interest rate increases and this proposed move by the Victorian Labor Government will be the straw that breaks the backs of many property investors,” Mr Kingsley said.

“Not being able to recover some of these costs will mean some mum and dad investors will be forced to sell, and with other budding property investors snubbing Victoria because it’s too hard and too costly to hold properties, the story is going to be pretty dire for the state and for all renters living there."

Image by Tarik Haiga Unsplash