Investors pull pin on Aussie property

CoreLogic’s Eliza Owen has released research examining the falling share of investors in Australia’s property market since 2016, which fell to a fresh low in August:

Owen notes the following factors as drivers of the decline in investor mortgage share:

  • temporary policies implemented between 2014 and 2019, which limited lending products favoured by investors;
  • mortgage rate premiums for investor loans
  • less appetite for high LVR and interest only lending from the banking sector
  • less certainty around prospects for capital gains
  • high levels of housing construction which have softened rental returns; and,
  • the recent global pandemic, which has created a particular negative demand shock to the rental market, thereby further
    inhibiting returns.

Turning to the individual jurisdictions you can see that the biggest fall in investor mortgage share has occurred in NSW (from a peak of 55.6% in 2014 to 27.4%) and VIC (from a peak of around 40% to 23.6%):

Eliza Owen believes that investor mortgage demand will continue to be constrained by the collapse in immigration, which will severely curtail rental demand:

As [NSW is] one of Australia’s two major international cities, the closure of international borders has created significant shock to the rental market, where new migrants to Australia typically rent… Ultimately, the biggest boost to investor returns, and an uptick in investor activity, will be dependent on international travel resuming to Australia…

Victoria, namely Melbourne, had the highest exposure to overseas migration as a source of new housing demand prior to COVID-19, which has significantly impacted rental values, particularly those in inner city markets. Across Greater Melbourne, unit rents have declined 5.5%, but in submarkets such as Melbourne City, unit rents have seen much more acute declines of -16.2% since March. Gross rental yields across the state were 3.4% in September, down from 3.7% one year ago…

With dwelling values also down 5.5% across Melbourne, and half a per cent across regional Victoria since the pandemic, investor interest is likely to remain subdued until international travel resumes.

The above data helps to explain why we are less negative on Melbourne and Sydney property. These markets came into the COVID-19 crisis already very expensive. They were also the immigration epicentres of the nation.

So, with immigration projected to turn negative over the next two years, these markets will be hardest hit, with huge dwelling gluts likely to develop and sharply falling rents.

There is little upside for investors in these markets, which will likely result in many remaining on the sidelines alongside a significant proportion of existing investors pulling the pin and selling.

Unconventional Economist
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  1. Hope that pin is linked to a crap tonne of more pins …………… 💣💣💣💣💣💣💣💣💣💣💣

    • Perhaps but it’s clearly one of the easiest ways for such a poorly developed economy to enable citizens to generate and make use of their wealth.

      Politicians are stupid but they are also cunning; when they refer to housing affordability they are not suggesting a decrease to values.

      It’s so ingrained in the system of Australia-everything, displeasure with it is like yelling at the sky.

  2. happy valleyMEMBER

    Chrissy Joye, the RBA megaphone and Strayan resi property spruiker in chief, has issued his latest weekly AFR missive applauding the RBA for crushing long-term borrowing rates. I would not be surprised if Chrissy is not too many missives away from advocating sharia law which effectively bans interest being charged on housing mortgages.

    But no need, Chrissy – your RBA mates will soon have their private bankster mates paying borrowers to take loans so that depositors can do their shirts under Josh Rainbowberg’s totally irresponsible lending law innovation.

  3. Misleading headline. Again. The falling investor share is being driven by the boom in owner-occupier lending, not a fall in investor lending. Investor lending is actually rising. Read the data yourself and report it faithfully.

    • Its true investor loan in dollar values is up over the month but that is coming off a VERY low point. May and June numbers are some of the worst going back to 2002. Take into account house price rises, that low dollar value of investor loans written is a very small number of loans. Can’t argue about OO loans booming. It’s something to behold.

      • Yes May was a low point but it has risen every month since then and is now back to pre-COVID levels. There’s a story in that data but it certainly ain’t that “investors are pulling the pin”

  4. Then again, there is this, sydney (new development) suburb where I am contemplating renting a property, most houses gone as soon as they are listed for inspection, no personal single inspections, 30-40 applications per property and when you put an aplpication in you get this email….

    ‘After reviewed your application, the landlord has two questions to ask if suits

    1. The landlord is a first home buyer, so she wish to receive rent in cash in the first half year, and the bond goes to our company account instead of to fair trading as she doesn’t want any transaction record to show this property is rent out instead of owner occupied. Does this way works for you?’

    Say what????
    I can’t believe they were stupid enough to put this in writing!

    • Agent should lose their licence even for asking the question and doubly so for putting it in writing.

      I assume the cash price is a pretty good one!

      • Actually no, also meant to add that most of these rentals are becoming like auctions, everyone bidding up the already too expensive price!!!!
        Needless to say I let that one go thru to the keeper!

    • When you bring the third world into your country, those people don’t become like you, your country becomes like the third world.

      Third world political corruption, business corruption, social corruption in general is what he have everywhere, and it’s only going to get worse.

      • Agree. Import the third world, become the third world.

        Zero faith in present “leadership”, blue, red or green.

      • Corruption is like prostitution. No one knows what came first, those whom offer or those whom ask for money to trade influence.
        Countries that have low corruption stomp on the corruption at the money receiving end thus offering does not work.
        Corruption experienced 3rd world countries imports would not be able to use their skills if there is no influence to be traded for gain. Supply and demand.
        Thus corruption is $$always$$ home grown first, meaning fresh imports are not in the position to introduce and offer influence.

        Immigrants have always changed the cultural landscape since about 250 yrs ago… LOL, you just thought your culture was permanent feature

    • Report them. I am not kidding. Forward the email to the ACCC, ATO and fair trading.
      Agent, owner and most likely also the bank are all in violation.
      Obviously the FHB has got the 5% down payment scheme with ST exemption but they have to live in it which they are trying to get around

  5. So we’re getting the soft landing in property prices all without having to change negative gearing.

    Good outcome all round.