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Investor sentiment starting to dip on rising cost concerns

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Investor sentiment starting to dip on rising cost concerns

Australia’s sky-high property prices are starting to take a toll on investor sentiment, with the percentage of investors feeling positive about the market declining at the same time that fewer say they intend to buy in the next 12 months.

Australia’s sky-high property prices are starting to take a toll on investor sentiment, with the percentage of investors feeling positive about the market declining at the same time that fewer say they intend to buy in the next 12 months.

Australian Property Investor Magazine’s latest quarterly sentiment survey revealed 63 per cent of respondents felt positive about current market conditions, down from 68 per cent in the previous quarter.

The decline in positive sentiment was the first on record for the API Magazine survey, which was launched shortly after the onset of the pandemic in mid-2020.

At the same time, the number of those listing affordability as their top concern rose by 50 per cent, rising from 10 per cent in Q2 to 15 per cent in Q3.

The survey results illustrate the impacts of Australia’s rapid rise in property values, with CoreLogic data showing median dwelling values gained 21.53 per cent in the 12 months to the end of October.

Two thirds (66 per cent) of investors said they expected property prices to increase over the next year, down from 75 per cent of respondents in Q2.

Just 10 per cent of respondents said they expected prices to fall over the next 12 months, while 14 per cent said they expected property values to remain steady.

The percentage of respondents saying they intend to buy in the next year fell to 30 per cent at the end of Q3, down from 36 per cent in Q2.

“While the survey results reflect the fact that many investors had already purchased property as markets boomed across the country in the past year, the rising price of entry is clearly emerging as a concern for many,” API Magazine editor Dan Wilkie said.

“Market watchers are predicting price growth to moderate over the next 12 months, but any panacea from a reduced rate of growth would likely be offset by an increase in the cost of finance, with pundits predicting interest rates are likely to rise sooner than anticipated.”

For those that do intend to buy, Queensland was the destination of choice, with 33 per cent of respondents saying they were keen on investing in the Sunshine State.

New South Wales was the second-preferred investment destination, at 23 per cent of respondents, followed by Victoria at 18 per cent.

Western Australia was fourth ranked at 12 per cent, with the state’s property growth potential starting to resonate with investors after just 6 per cent said they were likely to buy there in Q2.

“Queensland has been the location of choice for owner-occupiers and investors alike in 2021, and with a big infrastructure spend on its way to the state to prepare for the 2032 Olympics, that status isn’t likely to change in 2022,” Mr Wilkie said.

“Regional NSW is emerging as the only challenger to Queensland’s crown, although it does remain to be seen if the pandemic-related trend of city residents shifting to the regions will continue as office workers are called back into CBDs and the nation moves past lockdowns into the post-vaccination stage of the pandemic.”

In terms of property type, 44 per cent of respondents said they wanted to buy a detached house, 15 per cent were considering a unit or an apartment, 17 per cent were looking at townhouses or villas and 12 per cent said they were keen on vacant land.

For the respondents that chose to build a new dwelling in the past 12 months, construction delays and cost increases emerged as big issues.

Nearly half (43%) of respondents who built a house reported delays or cost escalations due to the short supply of building materials such as structural timber and the tight availability of building trades.

Overall, however, 57 per cent of survey respondents said the rising cost of construction and length of time it currently takes to build a house did not affect their intentions to enter the property market, compared to 26 per cent who said it had changed their decision to buy.

The possibility of a rise in interest rates does not appear to be influencing investor behaviour yet, with the percentage of investors refinancing loans to secure a historically low rate staying largely steady in Q3, as compared to the previous quarter.

API Magazine’s Investor Sentiment Survey polls property industry professionals and investors, with 48 per cent of respondents owning two or more properties.

Of the respondents that work in the property industry, 24 per cent are investors, 15 per cent are real estate or buyers agents and 14 per cent are developers.

More than a third (36 per cent) of respondents reside in NSW, 22 per cent in Victoria and 19 per cent in Queensland.

View the Investor Sentiment Survey Report

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