Investors head to the exits amid weakened COVID-19 rental market

Investors are offloading properties in the weakened rental market, with apartment listings surging across capital cities.

It has been led by Sydney where there has been a 39 per cent jump in new stock during the past four weeks.

The apartments are often recently vacated.

Domain data also showed that between the four weeks to May 17 and the four weeks to June 14, apartment listings rose by 27 per cent in Melbourne.

They were up by 15 per cent in Brisbane.

Listings were up 37 per cent in Perth.

Soaring vacancies and widespread rental discounting have squeezed investors' cash flows to the extent that almost two in every five landlords are in a position of financial stress, particularly in the Sydney and Brisbane CBDs, during April and May.

Residential vacancy rates for the Sydney and Brisbane CBDs climbed see almost one in six apartments sitting vacant.

Competition for tenants has further intensified as short-stay landlords switched properties into the long-term rental market, leading to the owners of 820,000 rental properties being stressed, analysis by Digital Finance Analytics for The Australian Financial Review shows. Another 120,000 plus are under severe stress.

A property is considered to be in stress for its landlord when it has been vacant for more than two months and rental incomes are insufficient to cover running costs.

Units and apartments were 1½ times more likely to be stressed than houses, while rentals bought within the past three years were twice as likely to be stressed.

Digital Finance Analytics principal Martin North said the high degree of stress was surprising given the current low borrowing costs.

"I've never seen this level of investor stress in the past," Mr North said.

"It's a perfect storm thanks to COVID-19, the previous massive run-up in investment properties, fall in rental income, collapse of Airbnb demand and no inward migration."

The areas with the highest proportion of stressed investors were all in the apartment-dominated Sydney and Melbourne CBDs.More than eight in 10 investors in Sydney's Rushcutters Bay and Ultimo were stressed, with 1377 severely stressed.

In the Melbourne CBD and western Melbourne, more than three out of four landlords were stressed with 1918 investors under severe stress.

While apartment rentals were weak, a total investor wipeout was unlikely, AMP Capital chief economist Shane Oliver said.

"Investors are unlikely to default en masse as they can opt to freeze their mortgage repayments," Dr Oliver said.

"But the risks are still there."