Rental dwelling sales surged in the past 12 months, according to a survey of 1724 investors by the Property Investment Professionals of Australia.
The results revealed a "staggering" 12.1 per cent of investors sold one or more of their rental properties.
Investors in Queensland and Victoria are leading the exit, with almost a quarter offloading one or more properties in Melbourne and Brisbane, according to PIPA chair Nicola McDougall.
"About 43 per cent of respondents in this year's survey sold to an existing homeowner, while 30 per cent sold to a first-home buyer," she said.
"Just 24 per cent sold to another investor - down from 33 per cent last year - which means the majority of those investment properties were likely removed from the rental market."
Ms McDougall said last year's survey found 16.7 per cent of investors had sold at least one property in the previous two years.
"Clearly, this would explain the undersupply of rental properties available for tenants around the nation ... yet another stark illustration of the mass exodus of private investors from the market."
Using the 2021 Census baseline of 2.477 million private rental dwellings in Australia, it is estimated that hundreds of thousands of rental properties were sold in the past three years.
The data shows investors deserting Victoria and Queensland, with 24.8 per cent of investments sold in Melbourne and 23.3 per cent sold in Brisbane.
Regional investors have also fled, with 16.4 per cent sold in regional Queensland and 6.4 per cent sold in regional Victoria.
Ms McDougall said the sell-off added pressure to the rental crisis driven by the drastic undersupply of homes.
The survey showed NSW and Western Australia offer premium investment opportunities, according to respondents.
Investors have attributed the sell-off to increased government reform and regulation, including changes to tenancy legislation, rental freezes and an increase in limits or caps.
The survey also found the sell-off was likely to continue with 38 per cent of investors planning to divest even more holdings within the next 12 months,
"It's not a mystery why so many investors are planning to exit the market, should governments further increase or introduce new taxes and compliance costs, 47.2 per cent of respondents said they would be forced to increase rents," Ms McDougall said.
Victoria has rolled out a $5 billion land tax hike and mooted caps on rental price increases or a rent freeze, while Queensland implemented and then scrapped plans for land tax reform.
The survey canvassed 1724 investors during the month of August - a record response.
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