03 9550 0700

What slump? say property investors

An article in The Age a few weeks ago caught our attention, highlighting the role investors are playing in a resurgent property market - with loans to investors soaring 16% in the last twelve months on the back of historic low interest rates, generous negative gearing tax deductions, cheaper prices and relaxed superannuation rules.

This consistent growth has some calling it the end to the property slump. There are certainly some interesting statistics and analysis to follow.
 

What slump? say property investors.

The figures below certainly draw quite a clear picture - investment properties have had a boom of sorts over the last few years. But contrary to the doomsayers, young buyers are still active too and moving up the real estate ladder, according to the latest reports in first quarter 2014.

One in seven Australian taxpayers have an investment property.

Australian Tax Office records show one in seven taxpayers (14%) now own an investment property and one in 10 of those are negatively geared.

The number of these investors has ballooned from 1.3 million at the end of the 1990’s to more than 1.8 million in 2010-11, the latest year for which Tax Office statistics are available. That’s a lot of growth in one decade.

More recently (the Australian Bureau of Statistics shows) loans to investors have soared 16% in the last year. A lot of growth in a single year.

Meanwhile, lending to owner occupiers - the traditional powerhouse of the market - grew at a far slower pace, just 6.6% over that time. So we know interest in investment properties is growing. Booming even. But why exactly?
 

What are the factors driving the investment property boom?

  • The first factor is obvious.
Owning a home provides many people with security and a store of wealth. It’s not surprising that a nation of keen home owners would choose residential property as a place for further investment, in the form of an apartment, villa or house. Sharemarket volatility and low interest rates means there’s a lack of options so investors simply head to what they know best - and that’s property. Terms like ‘safe as houses’ and ‘bricks and mortar’ are part of our vernacular describing a ‘safe bet’ and are ingrained in our culture.
  • The second factor is historically low interest rates.
In the early 1990’s Australians were paying vastly higher interest rates on typical bank mortgages - up to 15% and 16%. It goes without saying that the sums people were borrowing then were smaller, but so were incomes. Even in this scenario, and with some difficulty, Australians were still biting the bullet and buying homes and investment properties.
  • The third factor is negative gearing and the tax opportunity it provides.
The fourth factor contributing to the recent jump in property investment is that a growing cohort of people are harnessing the buying power of their self-managed super fund. Some media commentators claim it is the entry of these investors in particular which is driving up prices and that it is this dynamic which is forcing many first-home buyers out of the market. The argument goes that these would-be first home buyers have no option now but to become long-term, perhaps lifetime, private renters.

Although this appears to be a period of adjustment in buying behaviour the desire to own one’s own residence is a powerful driver and it still makes good long term fiscal sense. Some expectations just have to be revised down. First (entry-point) homes can still be affordable - if they are smaller homes, apartments or villas.

Buying your own residence has been a large undertaking for every generation regardless of the era. The first years have always been a challenge. But there’s no better time to stake a claim in the market than the present.
 

Young buyers moving up in Melbourne.

And speaking of the present, March 2014 has seen increasingly buoyant buying by young families across Melbourne. According to the Sunday Age on March 23:

“Young family buyers were active at all price points in the market on Saturday as large crowds turned out at auctions and open houses across Melbourne”.

Double-fronted period houses within 10 kilometres of the city centre were attracting hot competition from young families. In a recovery, low-priced property often moves first, but when ‘trade-up’ young family buyers start competing for real estate it’s a sure sign real growth. These are the young families who bit the bullet, bought an apartment or small house a few years ago and can now take advantage of their increased equity, plus savings, to trade in and move up the ladder to that extra bedroom and more living space.

Cashed-up downsizers and investors who have been responsible for a lot of the buying in Melbourne over the past three years are now getting competition again from younger buyers.

According to Hockingstuart agent Daniel Wright who works in Chelsea and Bonbeach, is seeing similar trends.
“Young families who are in a three-bedroom unit are upsizing to a family home,” he said.


Residential property will keep it’s popularity as long as people aspire to own the roof over their head, have somewhere to safely store their assets, and as a means to achieving investment growth. It’s a powerful combination.

 
Posted: 28/03/2014 12:45:36 PM
0 Comments
Blog post currently doesn't have any comments.