Residential investors look set to return from the sidelines

Australia’s residential property price surge is underway, despite investor activity falling as a proportion of the buyer market.

Property Investor
Investors are expected to capitalise on property price growth in 2021. Photo: Shutterstock (Image source:

Australia’s residential property price surge is underway, despite investor activity falling as a proportion of the buyer market.

Although there has been steady monthly increases in investor lending since June 2020, the market share of overall residential loans for the investor sector fell to a record low of just 19.5 per cent over December - compared to 21 per cent for first home buyers and 59.5 per cent for owner-occupiers. 

Investors are also weighing up economic uncertainty, mortgage repayment reprieves ending very soon, and the federal government’s $25,000 HomeBuilder subsidy being reduced to $15,000 at the start of the year, and set to be wound up by the end of March.

While the investors may be sitting on the sidelines for now, Australians as a whole are borrowing more money for property than ever before and among investors, two-thirds have expressed confidence that property market conditions will strengthen.

Property Investment Professionals of Australia (PIPA) Chairman Peter Koulizos said the current price growth should not be a surprise.

“The low point for investment activity was May last year, however, new loan commitments have grown since that time to be about 10 per cent higher in December than the same period the year before,” he said. 

“In fact, the latest official data shows that more than $6 billion-worth of new investor loans were recorded in December – the highest level since July 2018.” 

With strong activity from owner-occupiers and first home buyers already under way, the increasing number of investors in the market was expected to add to property price pressure in many locations around the nation. 

“Part of the reason for dwelling price rises is the low supply of properties that are hitting the market, which was also foreshadowed in last year’s survey when 71 per cent of investors indicated that the pandemic had made them less likely to sell a property over the short-term,” Mr Koulizos said.

Queuing up for debt

While many are dreading the imminent end to the home loan deferral scheme – or so-called mortgage holidays – that have helped hundreds of thousands of struggling homeowners during the coronavirus pandemic, there’s no shortage of borrowers lining up for more loans.

The total value of new loan commitments for housing reached a record high in November 2020, rising 5.6 per cent to $24 billion.

The value of new owner occupier home loan commitments – not investors but people buying to live – rose 5.5 per cent to $18.3 billion.

Justin Doobov, founder of leading independent mortgage broker Intelligent Finance, agreed that the overwhelming weight of owner-occupier demand in the market is overshadowing the traditional investor market. 

He said the investor sector was still very active but impacted by the perfect storm of factors such as low interest rates, the raft of incentives to support first home buyers, and reduced rental demand from the overseas student tenant pool.

“We would need to see a significant shift in either migration, or incentives to underpin a stronger burst of investor activity - until then, there’s daylight between investor and owner-occupier lending,” he said.

There are, however, market segments and locations nationally that look poised to benefit the soonest from any increased investor activity.

 Mr Doobov said lifestyle investment dominates lending activity whether along Australia’s east coast or in the west.  

“The conditions have never been better when it comes to borrowing to either improve your existing home or upgrade entirely and we are seeing an extraordinary demand from clients who are driven totally by lifestyle,” he said.

“They’ve spent more time in their home in the past year than ever before and they want that space to work more effectively for them – as a home, workplace and retreat. 

“We’re talking about a totally different return on investment. 

“We’re also seeing increased demand from buyers looking for lifestyle investments an hour or two from major centres – in the country, on beaches, in more remote but still connected locations.

“This is cyclical, and we expect many of these properties will revert to investment and part-time occupancy properties in time as buyers return to the city centres.”

Risk and reward

Chief Economist at property technology company Archistar, Dr Andrew Wilson, said questionable restrictive lending practices by banks over recent years have been a clear contributor to the unprecedented collapse in activity from investors with clear ramifications for the supply of new homes, particularly apartments.

“This also has significant consequences for currently much-need economic activity from a clearly labour-intensive sector.”

According to Archistar, NSW remains the top performer for investor activity with December loans approved valued at $2.63 billion, followed by Victoria ($1.52b), Queensland ($1.07b), Western Australia ($0.38b) and South Australia ($0.24b).

Prominent Perth-based property commentator Gavin Hegney told API Magazine that for investors to return to the market in a significant way there needed to be an appetite for risk.

“People invest when they believe prices are going up and the time is right for them,” he said. 

“The only thing I’d say is some of the best opportunities come at the worst time for us, and we have to try to make them happen — use the past lessons of what you have missed to put the fuel in your investment engine. 

“The opportunities we miss today are either mistakes or they are drivers for future success. It’s your choice — the best investors have often missed more opportunities than most yet this has subsequently powered them to make the good decisions which have made them the best.

Mr Koulizos said rising prices were alleviating that sense of risk.

“With owner-occupiers, investors, and first home buyers out in force at the same time, there is only way for property prices to go and that’s up,” he said.

“If you add low supply levels as well as once in a generation interest rates into the mix, then property markets are set for strong conditions for the foreseeable future in my opinion.”

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