Investors are set to take up the slack in the property market once the first home owners grant starts to be scaled back after September 30th. According to Matthew Bell, economist for Australian Property Monitors, there is plenty of statistical evidence that investors are looking at property again.
“Property investors who have been waiting for the removal of the (FHOG) boost and the bottom of the interest rate cycle are expected to begin re-entering the market in greater numbers in the second half of 2009 and early 2010.”
Australian Bureau of Statistics figures supplied by APM show investment borrowing for property reached the bottom of the cycle in December 2008 and has been steadily rising since then. APM’s figures showed investment borrowing bottomed at $5.196 billion in February and has been rising steadily since then, reaching $5.898 billion in June.
“Investor finance has only been growing since February this year, six months after owner occupied finance began to increase strongly,” says Bell.
As a result the recent upward trend in property prices will continue, but it will be the investment properties making the running rather than first homes. And while there is some overlap between the two markets, they are not identical. First home buyers traditionally target the more affordable outer suburbs of the city; investors tend to favour the unit market closer to the city centres or at least near good transportation.
First home buyers hold off
There are already signs that first home buying is starting to taper off. “In June 2009 for the first time since February 2008, the number of loans issued to first home buyers has fallen as a proportion of all loans issued,” says Bell.
Some of this is because first home buyers are scared at the prospect of interest rate hikes in coming months plus there is some concern that first home prices have been inflated because of the first home owners grant bonus. In the mind of John Lindeman, head of research at Residex, many first home buyers who are not yet in the market have missed the boat. “If you have not already bought, you are probably too late,” says Lindeman.
But Bell is far less pessimistic saying there are opportunities for both first home owners and investors.
Good time to buy
“Interest rates are low and prices in many areas are still well below their historical highs, so now is a good time to get in and for investors rental yields are at attractive levels,” says Bell. He cites the southern and western regions of Sydney where median rental yields are currently above 5 per cent for houses and well above 6 per cent for units.
“The prospect for rental growth is still very strong as vacancy rates remain historically low,” says Bell. Residex’ Lindeman says it is a good time for investors to be getting into the market if they pick the right areas.
“You should be looking at those areas that will benefit from the Government’s infrastructure projects,” says Lindeman. “The regional rail express in Victoria will directly link Geelong, Ballarat and Bendigo to Melbourne so they will become satellite suburbs. Investors will do well in these sorts of areas.”
In the June quarter property prices moved up a healthy 3 per cent in Sydney, Melbourne and Brisbane and while this pace may not be maintained going forward, there will still be moderate growth, says Bell.
The outlook for both owner occupier and investment property continues to be positive.
- Investors return to the market
- Rental yields at attractive levels
- Prices still below historic highs