Property News, Insights & Education

    The return of the property investor

    • ABS figures show loans to property investors are up more than 20% year-on-year
    • Google searches for “investment property” have hit their highest level since 2017
    • Industry leaders, brokers and analysts say investors are being attracted to the property market due to higher certainty around interest rates, rising prices, a rental shortage and tax breaks like negative gearing
    • A recent survey of property investors found more than 20% intend to buy a property this year

    You might have seen a lot of commentary around last year about how investors were supposedly exiting the property market in droves.

     

    Even as late as November, PropTrack’s Director of Economic Research, Cameron Kusher, was warning that “investors continue to exit the market, which is keeping the overall stock of rental properties low”.

     

    There’s no doubt that the highest interest rates in more than a decade and the introduction of new property taxes in Victoria and Queensland did cause some financially challenged investors to sell up.

     

    But statistics don’t lie.

     

    What the data actually shows

     

    Australian Bureau of Statistics (ABS) figures show lending to property investors actually bottomed out in February 2023 and has been on the increase ever since.

     

    In fact, the ABS’ latest lending indicators release showed more than 16,600 new loans (excluding refinancing) totalling $9.5 billion were made to property investors in December 2023 - that’s 20.4% higher than December the previous year.

     

    lending_Feb14_24

     

    According to the ABS, investors now account for more than one-third of all new lending.

     

    "The proportion of loans to investors has increased from 27.3% in December 2019 to 35.5% in December 2023," says Mish Tan, the head of finance statistics at the ABS.

     

    The lending figures led the team at Macrobusiness to declare: “Aussies pile into investment property”.

     

    Macrobusiness co-founder Leith van Onselen also points to data, which shows that Google searches for “investment property” have boomed, hitting their highest level since 2017.

     

    google_search_Feb14_24 (1)

     

    Why are investors back?

    One reason is that home buyers - including property investors - see more certainty around the future of interest rates.

     

    “I’m seeing more people that I spoke to two years ago about investing, who then put it off, coming back now that things have settled down,” Mortgage Choice broker Terri Unwin told realestate.com.au

     

    Then there’s the unprecedented demand for rental properties driven by high population growth. 

     

    “This is almost a perfect storm for investors - we are seeing growth in house prices again in many metro and regional locations,” says Alex Reithmeier, Research Executive at DPN.

     

    “From a supply perspective, the national shortage in affordable housing remains unabated and there is no short-term solution.” 

     

    “In the last two years, more than 600,000 new migrants have arrived in Australia and simply put, they need somewhere to live,” he told Australian Property Investor Magazine.

     

    John McGrath, who runs the McGrath Real Estate Agents group, points to property price growth, with CoreLogic figures showing national home values rising 8.1% last year.

     

    “Like all other buyers, I think investors are also feeling inspired by last year’s price rises.” 

     

    “It’s unusual to see home values rising when interest rates are also going up,” he says. 

     

    “A significant supply/demand imbalance has changed that dynamic”, and “this has removed a psychological barrier for investors.” 

     

    According to John McGrath, property investors are “no longer perturbed by higher interest rates or even the possibility of higher rates for longer.” 

     

    And with the current low vacancy rates and competition for rental properties, “it’s easy for a landlord to find a great tenant and they’re receiving materially higher rental income.”

     

    Macrobusiness’ Leith van Onselen, who’s also the Chief Economist at MB Fund and MB Super, has another theory.

     

    “The record share of personal incomes being consumed by taxes is also likely to lead to more investors seeking negative gearing opportunities to minimise their taxes,” he says.

     

    This seems particularly relevant after higher-income earners missed out on larger tax refunds, following the Albanese government’s revisions to the Stage 3 tax cuts.

     

    “Given mortgage rates look to have peaked and the rental market is booming (with rising yields), 2024 should see investors lead the demand for housing,” Mr. van Onselen says.

     

    Tax_to_income_ratio_Feb_14_24

     

    Positive sentiment

    Whatever the reason, property investors seem largely optimistic about the future, with the latest Australian Property Investor magazine quarterly survey showing 57% of respondents have a positive sentiment about the Australian market, with only 15% in the “negative” camp and 28% “neutral”.

     

    The survey also shows that 21.5% of the 778 survey respondents intend to purchase an investment property this year. 

     

    In the last couple of years, property investors have been challenged by considerably higher interest rates, new state government taxes and regulations and accusations by some politicians that they are “gouging” tenants.

     

    The good news is that many appear to have set aside those short-term concerns and media “noise” and are concentrating on what really matters - the strong long-term returns from investment property.