Investor lending slumps but affordable areas still a magnet for buyers
In the face of plummeting investor loan lending and an uncertain economic environment, at least two major national property markets are attracting increased buyer interest.
The number of loans to new investors has almost halved from its peak levels just a year ago.
Since peaking in March 2022, new lending to property investors is down 47 per cent to hit a level not seen since August 2020.
For all borrower types, new lending has fallen and the value of new lending to investors was down 34.8 per cent year-on-year in January.
However, irrespective of the fast rise in interest rates and shift in market conditions, there are some regions that have still seen increased investor interest, if not activity, in comparison to the previous year.
The overall volume of enquiry from investors fell 20 per cent over the calendar year 2022 as interest rates quickly climbed and the housing market rebalanced off 2021’s extremes. The volume of investor enquiry fell in four out of five suburbs Australia-wide.
According to PropTrack, irrespective of the fast rise in interest rates and shift in market conditions, there are some regions that have seen increased investor activity in comparison to the previous year.
Enquiry data reveals investors set their sights predominantly on Western Australia in 2022, with the number of enquiries from investors more than doubling in parts of the state throughout the year. Some parts of regional Queensland and Adelaide were also popular.
Lending indicators data from the Australian Bureau of Statistics (ABS) released earlier this month corroborates the enquiry data, showing that in WA, when comparing the past year with the corresponding 12 months prior, the value of new lending to investors in WA is up 26.2 per cent, in stark contrast to the huge east coast falls.
Investors look to rental yields
Rental markets are tight Australia-wide, and at a national level, advertised weekly rents on realestate.com.au surged by 9 per cent for houses and 12 per cent for units over the past year.
Affordable suburban and regional suburbs have attracted the greatest increase in investor attention over the past 12 months.
An exception among the top five is Ultimo ($1,541,000), an inner-city suburb set to benefit from returning international arrivals and rebounding numbers of student arrivals, which saw enquiry from investors more than double.
It’s Perth that now has the dubious distinction of having the tightest rental market among the state capitals with a rental vacancy rate of just 0.85 per cent.
Eleanor Creagh, Senior Economist, PropTrack, said rental yields are highest nationwide in the suburbs of WA and regional Queensland, likely piquing investor interest.
Prices in WA are some of the most affordable in Australia, which is probably another driver of the increase in investor demand.
The share of mortgage repayments for an average income household on a median priced dwelling in WA is less than in every other state, with the exception of the Northern Territory and again, with the exception of Darwin, Perth is the cheapest capital city.
The median value of homes in Perth is currently sitting at $564,000 and $606,000 in regional Queensland, another comparatively affordable region, as of January 2023.
“Some regional WA suburbs, particularly those tied to the mining industry, have increased in popularity among investors, with strong yields and tight rental supply keeping rental prices high,” Ms Creagh said.
“Adelaide, another rental market facing incredibly tight rental supply and record low vacancy rates has also experienced strong rental price growth.
“After the large and fast adjustment in interest rates since May last year, with maximum borrowing capacities for potential buyers now reducing by close to 30 per cent, price is likely to have been, and will continue to be another driver of the increased investor demand in more affordable regions.”i
In terms of where the absolute level of investor enquiry was highest throughout the calendar year 2022, unsurprisingly larger, higher density inner city suburbs and regional centres hold the top spots.
PropTrack data found that Brisbane City saw a 51 per cent year-on-year increase in enquiry from investors throughout 2022. Home prices in the city have surged since the pandemic onset, rental price growth has also been strong, and properties are renting out very quickly with heightened demand for rentals in the city.
Conflicting signs for property in 2023
The prospects for the national property market in 2023 were balanced between forces that could push prices either way.
On the push side of the equation, Ms Creagh pointed to rising rents amidst a rental crisis, and population growth through migration.
The latest population data from the ABS indicated the September quarter of 2022 brought the largest quarterly increase in net inward migration on record.
“The latest overseas arrivals and departures data, a good proxy for the less timely migration data, continues to point to those strong inflows having continued into this year, with net permanent arrivals rebounding fast to pre-pandemic levels and on track to well outpace Treasury forecasts,” she said.
Investors, however, remained hesitant.
“(There is) changing legislation occurring alongside the significant reduction in borrowing capacities, rising mortgage servicing costs, reduced capital growth prospects, and uncertainties around where interest rates will land.”
“Ultimately, once interest rates pause their climb, as they are expected to this year, investor activity may begin to increase if uncertainty reduces and confidence increases.”