High rates and taxes fail to deter property investors

There’s been plenty of stories in the media lately about property investors selling up, particularly in states like Victoria and New South Wales, where governments have been accused of adopting policies that are “unfriendly” to investors.

But is this actually true?

And how does this “selling up” narrative square with data that shows lending to property investors is actually very strong.

To try to answer these seeming contradictions, CoreLogic’s Australian Head of Research, Eliza Owen, has released a new piece of research, which provides some fascinating insights into property investment in Australia.

The details

CoreLogic’s Eliza Owen says that while there is a popular view, “investors are giving up on the property market…turned off by high interest rates, tenancy reform and increased property taxes,” evidence from the Reserve Bank of Australia and from the Australian Bureau of Statistics shows “investment purchasers are on the rise.” 

“RBA data shows growth in investor housing credit has risen strongly, and ABS data shows the number of investor loan commitments in the year to September (2024) was around 212,500, up 18.8% on the previous 12-month period,” she says.

To get more insight on investment purchases and sales she compared the number of secured housing investment loans reported by the ABS against the number of new listings that CoreLogic infers are investment properties coming up for sale.

The CoreLogic research shows that as of October 2024, there’s a clear gap between monthly investor loan commitments and investor-inferred sales, with around 5,400 more new investment property loans being written in Australia than rental properties being put up for sale.

In fact, the rate of home loans being issued to investors is quite high compared to the norm over the last 5 years, while the number of properties being sold by investors is well below the 5-year peak.

“Investor inferred listings have been trending higher since March this year, to 13,000 but remain well below the peak of investor listings activity in November 2021,” Eliza Owen points out.

“In November 2021, selling conditions were very strong, national home values had risen almost 25% in the space of a year, and even short-held investment properties were turning a strong profit.

“As investment listings remain below these highs, the number of new loan commitments remains high at 18,400.

“The previous five-year average for the month was 14,516,” she says.

Regional differences

There are, however, clear differences across the country, with “elevated levels of new investment loans in high-growth markets, and more investor listings in low-growth markets.”

“In the year to September 2024, ABS loan commitments for investments grew 18.8% nationally, but most of that uplift was driven by NSW, QLD and WA,” CoreLogic’s Eliza Owen says.

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“The highest growth in investment loans over the year has been concentrated in high capital growth areas, and that investment activity tracks strongly with value change. 

“In both Victoria and Tasmania, where values have been in decline, the year-on-year uplift in investor loans was relatively small, at 5.1%.”

Ms Owen says the trend in the listing of investment properties for sale also varies across the country.

“In October, new investor listings were around 3,800 in Victoria, accounting for 29% of the national figure, and up 10.6% on the previous five-year average.

“Meanwhile, investor listings were below the historic average in SA, QLD and WA where housing values have been rising rapidly,” she says.

Types of buyers changing

The CoreLogic analysis also suggests there are other changes underway in the property investment space.  

“The stark changes in Australia’s economic environment over the past few years mean that the kinds of properties investors buy may be changing, and the kind of investors in the market may be changing too,” Eliza Owen says.

“The RBA noted a possibility that less leveraged investors may be taking the place of more highly indebted ones.” 

This latter point might indicate that “cashed-up” investors, with significant equity in their own homes and perhaps in investment properties they already own, may be taking the place of some buyers who rushed into the market during the Covid property boom, when interest rates were at historic lows.

As interest rates rose rapidly from May 2022 to their highest point in 13 years, many of these opportunistic investors - who may have bought into the market without a large deposit - have found themselves in a negative cash-flow position, with their rental income not covering their interest repayments and outgoings.

“ABS loan data also suggests the portion of first home buyer loans for investment purchases has risen,” Eliza Owen says, although she points out this number is quite small.

“This may be a function of some first home buyers viewing an investment property as a more affordable entry point to the housing market.”

This is clear evidence of the growth of “rent-vesting”, where home buyers purchase a property where they can afford to buy one and rent where they actually want to live.