The New South Wales government has introduced sweeping rental reforms aimed at increasing tenant security and creating a fairer rental market.
While these changes have been welcomed by many renters, they have also sparked concerns among property investors who fear that increased regulation could discourage investment and exacerbate the rental supply crisis.
Set to take effect on 19 May 2025, the new NSW rental reforms include:
• Ending no-grounds eviction: Landlords will now be required to provide a valid reason for terminating all lease types. Longer notice periods will apply for some leases. This aims to ensure renters have more time to secure new housing.
• Pet ownership: Tenants can apply to keep a pet and landlords can only refuse under specific conditions, such as the owner living at the property or non-compliance with local council regulations. If a landlord does not respond to the pet application within 21 days, approval is automatic.
• Fee-free rent payments: Renters must have access to free electronic payment options, like direct bank transfers.
These new NSW rental reforms follow changes that came into effect in October 2024, which prevented landlords from passing on the costs of a background check on to the tenant and limited rental rate increases to once a year.
The NSW government has indicated there will be more reforms to follow later in 2025, which will include stronger privacy protection for renters and a portable rental bond scheme to ease the transition between properties.
One of the primary criticisms of these reforms centres on the potential impact on investor confidence in the state. Concerns have been raised that overregulation could lead to an exodus of property investors from the NSW rental market.
The NSW rental market has been very tight for a number of years. The rental vacancy rate in Sydney has been below 2% since the start of 2022, according to SQM Research. Most analysts believe a vacancy rate of around 3% is required for the market to be considered balanced.
At the same time, the number of investors buying rental priorities has fluctuated. According to the Australian Bureau of Statistics, there were 14,472 new home loan commitments by property investors in the December 2024 quarter in NSW. This was down 4.2% from the previous quarter.
There are several reasons these new and upcoming NSW rental reforms may encourage some property investors to sell.
The new regulations, particularly the ban on no-grounds evictions, have raised concerns about potential exploitation by tenants well-versed in navigating the system. The current dispute resolution process is perceived as lengthy and inefficient, potentially leaving landlords exposed to financial losses.
Additionally, the Real Estate Institute of New South Wales (REINSW), which engaged with the state government on these latest reforms, has raised concerns about how the government and the public view property investors.
Speaking to The Smart Property Investment Show, REINSW president Tim McKibbin said investors are often called “residential rental providers”, suggesting the sole duty of the investor is to provide the property.
This could potentially undermine the goals of an investor looking for capital appreciation as a tool for building wealth.
“They are an investor and they want the maximum return they can get. And it’s okay for an investor to want that,” said Mr McKibbin.
With stricter regulations and rising interest rates, some property owners are already reassessing the viability of holding onto their investments.
The REINSW said they have noticed property investors leaving. Mr McKibbin warned that the NSW rental reforms could trigger an exodus, mirroring the detrimental effects witnessed in Victoria and New Zealand.
“People are leaving this market. They’re either getting into other investment opportunities or quite a lot of people are moving their property into the holiday and short-term rental market – if you’re in a tourist area – where you have greater control of your property,” said Mr McKibbin.
When landlords face increased costs, compliance burdens and difficulties removing problematic tenants, they may opt to sell their investment properties or redirect funds into alternative asset classes.
In the year to September 2024, CoreLogic data revealed new investment listings in NSW (properties previously owned by investors) were 7.2% above average, suggesting investors are choosing to leave.
If a significant numbers of investors exit the market, we may see:
1. Reduced rental supply: With fewer rental properties available, competition among tenants will intensify, driving up rental prices.
2. Increased pressure on government housing: More people unable to secure rental properties may lead to more demand for government-supported housing, straining public resources.
3. Shift in investment trends: Residential property investors may shift toward commercial real estate, managed funds or other assets with fewer regulatory hurdles, reducing the number of private rental providers.
Despite these challenges, property investors can take proactive steps to mitigate risks. Staying informed and keeping up with legislative changes ensures that investors understand their rights and obligations under the new framework.
Consider working with a knowledgeable property manager who can navigate the complexities of rental laws and protect investor interests.
Finally, property investors should conduct a health check of your portfolio, considering the increased compliance requirements and potential financial implications. It is recommended you work with an experienced mortgage broker to assess your loan structures and cash flow. They will also be able to provide advice on refinancing or restructuring to maintain a sustainable investment strategy.
If you would like to review your current investment portfolio, Shore Financial can help. To discuss your scenario, call us on 1300 416 700, email us on info@shorefinancial.com.au or fill in this online form.
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