Investors primed to pounce on Aussie property market

One of the most notable aspects of the current property boom is the absence of investors.

Despite the lowest mortgage rates on record, investor mortgage demand remains well below its 2015 peak while owner-occupier demand has surged to record high levels.

This is illustrated clearly in the next chart, which tracks ABS data on new mortgage commitments (excluding refinancings):

While investor mortgage commitments did grow by 11% in the 2020 calendar year, they remained 40% below their April 2020 peak. By contrast, owner-occupied mortgage commitments surged by 39% in 2020 to a level that is around 35% above prior peaks.

Sentiment is changing, however, with the REA’s latest Property Outlook Report reporting a sharp increase in investor inquiry at the end of 2020:

The recovery that investor enquiry staged in the final quarter of 2020 is set to extend into 2021. Importantly, larger markets such as Melbourne and Sydney, are no longer seeing declines in activity. Strong conditions in regional WA and Canberra has extended to regional NSW and regional SA.

I anticipate investors will join the property party in droves throughout this year, especially in markets outside of Sydney and Melbourne.

Rental yields are enticing outside of Sydney and Melbourne and rental growth is generally solid to strong outside of apartments:

When these yields are viewed against the record low mortgage rates on offer (especially fixed rates):

In markets outside of Sydney and Melbourne, investors have the opportunity to secure a property with neutral to positive gearing and the prospect of solid capital gains.

In short, the general investment case for Aussie property is too strong to ignore. Hence, investors are likely to enter the fray in increasing numbers throughout the year, which will pour more demand fuel on the housing bonfire.

Unconventional Economist
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Comments

  1. In NZ the Labour Govt is determined to destroy the rental market, so I would suggest that Australian property companies and banks start marketing investment properties to NZ investors. They will find a very receptive audience.

  2. Classic ……….. the circle of buying and selling to each other in a feeding frenzy begins.
    Immigration turned off so cannabilising is rife . Developers, and councils, as usual, make sure supply is constrained.
    This is the way!

    • Literally 4 people in an auction room in an oroborus loop buying and selling the same silver plated tea pot for ever more insane sums thinking how rich are we.

      Dumbest economic analysis I have ever seen.

  3. Jumping jack flash

    Nice. If and when the investors pounce it will take the debt economy to higher levels than ever.
    Brace yourselves!

    Thanks, COVID. What would have happened without it? I shudder to think.

    Frustratingly, not a skerrick of CPI though, and it is almost March. CPI is a must if we ever hope to get wage inflation back, and then the debt can expand independently of the last stimulus. Missing CPI due to wage theft (primarily) was the main reason we had to have back to back interest rate cuts for the past 13 years, which did nothing!

    Perhaps there is still too much wage theft?

  4. Serge UpwardsMEMBER

    And over the last several years M.B. has been one of the biggest cheerleaders for cutting interest rates, you reap what you sow. Getting it so wrong about Australian house prices in the process. Now we have unashamed cheerleading for another boom. Sometimes you blokes just need to hang your heads in shame. No mention whatsoever of our hugely overly indebted households taking on even moar debt to fuel the ponzi. Your website used to be an outstanding source of information, nowadays nothing more than a source of amusement.

    • blacktwin997MEMBER

      Yes, could do with a little more ‘snapping up’ and ‘savviness’ if we’re speaking of the investment elite.

    • Zombie Apocalypse

      Sounds completely bonkers, historically it has been owner occupiers and FHB’s who ring the bell at the top. This will blow off as quickly as it started. I’m with the sun king, H2 slowdown.

  5. I commented here earlier this week that the amount of hidden residual apartment stock sitting on developer balance sheets is HUUUUUGE.

    No one hears about it but many near CBD buildings completed in 2018, 2019 and 2020 have between 30% and 60% of the titles still sitting in the developer’s hands. All were sold off the plan and all failed to settle.

    Cheap and easy credit allows developers to carry this stock using residual stock loans rather than doing what capitalism would require which is realise their malinvestments through a liquidation of the stock.

    Prices are so completely disconnected from anything like a functioning “market”.

    • Yeah but all the other apartments are not able to carry this and the market is so flooded there is literally blood on the streets of Melbourne.

      I am seeing solid brick built “flats” in desirable inner city locations that would have been well in excess of $400k in 2019 asking $150k

      Yes – you read that right – inner Melbourne (Parkville, Carlton, etc) which were $400k now at $150k

      This housing boom is enitrely spruik.

        • Was watching this one for MONTHS – just sold. Have seen plenty more like it – I am seeing entire blocks and streets filled in Brunswick with Agents boards.

          Most are not making it too Domain and Real Estate any more as they are just not moving and its wasting money – really is dire.

          There is so much spruik at the moment none of it matching reality.

          I watch Geelong and its just piling up and up and up and up. Disaster central.

          Mount Macedon, Woodend – some of the MOST desirable areas in regional Victoria are showing the worst price drops I have ever seen in that region – not showing up at all.

          https://www.domain.com.au/8-831-park-street-brunswick-vic-3056-2016763197

          • I had seen a place in the Inner North Melbourne area, 1 bed apartment for $200k or just shy. I really think that 1 bed, 1 bath has limited value in any market, but worse so in a Covid lead recession with no students, and people wanting more space.

            I think most commenters here agreed units like this would take a big hit come a recession and I am glad I’m not holding the bag on them. I just wonder if the loss from those will spread to houses or not?

            My opinion is there has been a bigger shift to detached housing in this recession than otherwise.

            When I lived in Ireland in 08 and the market tanked. Good housing in nice areas recovered quickly but crap stock like 1 bed units in crappy developments remained underwater for a long time.

          • That building looks like it’s past its use by date. Probably major structural or plumbing issues requiring the owner to offload at a loss. Or perhaps a levy imposed to all owners to put in a new roof – maybe nothing in the sinking fund to cover major works.

            Too many units in that block to get more money for land banking. And there’s no market to demolish and build an even bigger block of units.

  6. I’ve noticed in some posts on this forum in the last few days some are still in denial about house prices being on the rise.

      • I watched David delete half a dozen posts this morning for making basic statements of fact which contravened him. Any alternative view is met with a very fast ban.

        This website used to have almost 400-500 comments in the afternoon comments section – now there are barely 50 and its the same people every time.

        Site is dying for very good reason mate – its just the same thing over and over again, no dissent allowed AT ALL – and this is despite mountains of evidence to the contrary.

        Its an absurd pantomime at this stage – look else where – everyone else already has.

        • Serge UpwardsMEMBER

          I am cancelling my automatic renewal for M.B. and using the money saved towards improving my golf game. Most of my golfing buddies are way more savvy than macrobusiness, following their advice over the past 5 years would have been way more profitable by comparison.

          Disclaimer: M.B. has never influenced any of my own investment decisions, thank dog himself for that.

    • Check out Melbournes most expensive suburb Fitzroy (by square meter) – it has crashed in the last month by 8%, last quarter by 7.5%, last week by 20%

      I am seeing this almost everywhere I look. The only thing I am seeing is CoreLogics secret formula which finds the only suburbs going up in value in beech side queensland towns and then extrapolates that across the entire Australian market and then every single publication being paid by the big real estate advertisers (like Macrobusiness) spams Core Logic with 20 posts a day – look for any other data and its a TOTALLY different story.

      https://sqmresearch.com.au/asking-property-prices.php?postcode=3068&t=1

      Try taking a look at whats actually happening rather than just relying on this mob – every other person with any data at all is laughing at macrobusiness now days – for good reason.

      • I agree that dissenting posts shouldn’t be deleted. Having said that, I cannot disagree more regarding Melbourne house prices — they are flying like a rocket. I have been to quite a few auctions lately. There is just no way for such a high clearance rate to not be correlated with rising house prices. People talk about the clearance rate being ‘fudged’ — be that as it may, the reality is that an official clearance rate in the high 70s has always been correlated with strong house price growth.

        • Houses are a very different thing to 1 bed units and studios, they are not even in the same market. Definitely not looked at by the same group of potential buyers.

      • buttzilla thirtynine

        you know it, I sold one in Burleigh. got another waiting for the QLD bolt-hole-rush. Only places in Australia doing numbers. yer it’s all vapor.