Property presenting as most stable asset as investor exodus ends
Property investors have been leaving the market in droves but a turnaround is taking place as investor loans rise and investment prospects emerge.
Investor loans are up a strong 18.8 per cent nationally over the past 12 months, while at the same time 15 per cent of long term existing landlords are selling their investment properties.
With a softening of home buyers in the market place, it has opened a window of opportunity for new investors to enter the market without competing, as we have seen over the past four years, with home buyers who were prepared to pay whatever was being asked by sellers to simply put a roof over their head.
With an increase of sellers who have been forced to sell their properties from financial stress as a result of high interest rates, it means there are some exceptional buying opportunities that are presenting themselves in the market at present.
New investors who have entered the market are people who understand that although it may be six months or so before interest rates begin dropping, that the next move for interest rates will be downward and this may well prompt a resurgence of home buyer activity, thus meaning buying now makes more sense than waiting until interest rates fall.
Others have seen the volatility of the share market and the fact that it’s at record highs.
They are concerned about our slowing economy and many are now quoting concerns around potential changes in tariff policies in the US that are likely to have large impacts on world currencies and economies, as well as the stock market.
Real estate and its stability makes the most sense to them.
Real estate investment landscape has changed
The more sophisticated investors understand that real estate has, over centuries, been the safest investment.
Today we see that in total assets held, residential real estate accounts for $11 trillion of Australian’s wealth, followed by $3.9 trillion in superannuation, $3.2 trillion in listed stocks, and $1.2 trillion in commercial real estate.
What needs to be remembered is that Australia’s property market is now substantially different in all parts of Australia.
There are pockets where there are a lot more buying opportunities for investment,
In marketplaces where people are selling because the fundamentals of that market are declining, it is not the marketplace to be buying into.
The key to a medium and long term investment is buying in the right location and that is in the markets that have the right fundamentals that are producing the strongest growth in property values at present and into the future.
Many landlords have been exiting the investment market purely because the world of investment has changed.
While interest rates are actually not high compared to historic cycles, many are frustrated by the Reserve Bank’s policy settings and at a certain age in life you don’t want to be frustrated.
For others, there have been changes to the Landlords and Tenants Act that some long term investors feel has generated an imbalance in favour of the tenant. The reality is a well-managed property has not been adversely affected by these changes.
Deterrent rental reforms have not materialised
It is interesting to note that the national rental pool shows that 2,512,378 individuals account for 81 per cent of all rental properties held in Australia.
Trusts make up 255,000 or just 8 per cent of the rental pool and companies comprise 75,000 of the rental pool being only 2 per cent and government-owned properties account for 300,000 which is 9 per cent.
In total, there are 3,142,378 properties in our rental pool with 81 per cent of those owned by mums and dads who are just trying to get ahead in life by securing an added investment giving them capital gain, as well as income.
Finally, some political parties over the past couple of years have proposed changes to investment in real estate and those changes have been unacceptable for many investors.
The proposed changes included rent freezes, changes to negative gearing, capital gains tax and greater rights to tenants.
Many would suggest these changes were for the benefit of tenants, but they also triggered more long-term investors to sell their properties out of fear these changes might be implemented.
So fundamentally, while there are significantly more new investors entering the market than those exiting the rental market, the modest increase of new over old has not provided the additional accommodation needed in Australia.
What does appear to be happening is a changing of the guard, with long-term and perhaps more mature aged investors exiting year by year and a new generation of investors entering the market place, a generational changeover that was inevitable.
