Investors coming back to property

Posted on 20/07/2009  

Investors are coming back into residential property and are set to take over from first-home buyers as the major influence in the market, according to the latest Property Pulse report from RP Data.

It says rising confidence and strong rental yields are drawing investors back to residential property.

“Since the onset of the Global Financial Crisis, investment in Australia’s residential markets has been lacklustre with investors thin on the ground,” it says. “However investors are starting to return on the back of strong rental yields and an improvement in confidence.”

Both owner-occupier and investor finance commitments started to trend downwards at the beginning of 2008 as interest rates reached a peak and the reality of the global crisis struck.

Home buyers were quicker to return to the market, responding to low interest rates, strong buying conditions and the boost to government incentives. Since September 2008 the value of owner-occupier home loans has increased 42%.

But the value of investment loans continued to fall until the end of February. The last time property investment was this low was 2002. But since February investor finance commitments have been rising, increasing 18% to the end of May.

"The return of investors was delayed for several reasons,” says RP Data. “Investor confidence had been eroded, not just by the global economy but also by the shock of seeing share portfolios halve in value - with the prophets of doom and gloom suggesting property values were likely to do the same.

“With Australian property values proving very resilient - showing modest increases since the start of 2009 - investor confidence is likely to have improved markedly.

“Investors have also been waiting for first home buyer activity to start winding back before moving back into the market en masse. There is a considerable overlap between investor and first home buyer buying preferences, with both segments often targeting similar properties. Investors are likely to shy away from such competition. As the deadline approaches for the wind back of the First Home Buyers Boost (the boost will be halved on October 1st and removed entirely on January 1st) investor numbers are likely to gather further momentum.”

The report says investors who buy now are likely to be investing at a very attractive time. Rents have increased 34% over the last three years and now appear to be peaking. Securing a rental lease at peak rents has obvious benefits for an investor with regards to cash flow.

“The rise in rents, together with overall flat property prices over the last year, has resulted in solid yield improvements. Nationally, houses are now showing a gross rental yield of 4.5% and units are returning 5.3%. Darwin is providing the best gross yields at 6.4% for houses and 6.1% for units.”

ENDS

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