Investors consider residential property a low-risk investment with guaranteed returns when compared to other options.
Compared to the end of the previous decade when almost a third of the owner occupier housing finance commitment were made by first home buyers, the current market shows an ever growing presence of investors who in 2014 made up 40.0% of the total value of new housing loans.
Elevated activity of property investors in the post-GFC environment is not surprising. The Australian property market delivers solid returns to investors with agents reporting that even many young home buyers are delaying a purchase of their own place and instead are becoming first time investors.
The Australian Housing and Urban Research Institute (AHURI) found that most commonly, investors consider residential property a low-risk investment with guaranteed returns when compared to other options. According to AHURI, investors’ considerations are fed by feelings that property is ‘safe’, ‘stable’ and not subject to fluctuating markets. Investors feel ‘comfortable’ and familiar with property, reporting they have more experience and a better understanding of the property market compared with other investment markets.
Seemingly, property is widely regarded as easy to invest in and without the complexities of other investment options.
The value of investment housing has been gradually rising in recent years and in December 2014 was 91.0% higher compared to April 2011 (Figure 1).
In 2014, the proportion of investment housing as a total value of housing finance commitments was at its highest since the end of the 20th century with two states, New South Wales and Victoria, contributing to the growth. These two states saw a remarkable uprise of investors. The steady increase in the value of investment housing in New South Wales and Victoria combined made up 69.2% of the national figure in 2014.
From the end of 2011, when investment in housing started to pick up, rents, in real terms, have decreased in Melbourne and have remained relatively flat in Sydney. At the same time there has been a steady increase in population in both cities.
Despite the concerns from the Reserve Bank of Australia about an ‘unbalanced’ housing market and the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission about increased growth in lending to property investors and the provision of interest-only loans, the analysis of the historical data shows that the recent increases in housing investment has resulted in stronger competition amongst investors, higher rental vacancy rate and stalled increases in rental prices in real terms.