Investor forecast for 2018
Property investors play a significant role in the Australian housing market, and over the past few years, they have been further enticed into the market by access to cheap finance and strong value growth in many markets.
Over the past five years, the value of investor housing finance commitments has totalled $695.6 billion, and according to CoreLogic, at their peak in May 2015, investors accounted for 54.8% of new (excluding refinances) mortgage demand – which was an historic high.
However, in recent times, property investors have been the target of Australian Prudential Regulation Authority (APRA).
The impact of the levers put in place by regulatory bodies and financial institutions have certainly influenced the marketplace. Property investors may no longer be in a position to borrow what they like just because they have equity, as investor interest rates and loan value ratios are changing.
We are seeing signs of the true impact of these actions, as the percentage of investor mortgage demand fell a further -6.2% in September 2017. CoreLogic reports that as mortgage demand from investors, particularly in New South Wales, has slowed, so too has the rate of value growth.
Their data shows that investor mortgage demand in New South Wales has fallen from a peak of 63.6% in May 2015, to 50.3% in September 2017. Over the same month, Sydney capital city dwelling values were down 0.1%. This was the first month-on-month decline after 17 months of consistent capital gains.
I still believe there will be good opportunities to transact property in 2018, so here are some key considerations for investors for the coming year:
Changing investment opportunities
Investor opportunities may become stronger, even though the capacity to borrow may be weaker.
Over the coming year, there may be marketplaces across the country where investors are going to be needed to maintain value in property, particularly in areas where there are high levels of off the plan stock. The Brisbane market is one where there has been talk of apartment oversupply in some parts.
Some of these off the plan sales may struggle to reach completion in changing market conditions, and investors may be increasingly needed to act as secondary supporting buyers if the original buyers are not able to complete.
Foreign investment slowing
Australia has long been one of the most appealing destinations in the world for foreign property investment, however, these dynamics also appear to be changing due to tightened investment policy overseas.
Some countries (such as China) are restricting the way money leaves their countries and in particular, are regulating the use of money for outbound investments, such as property.
Whilst it may be increasingly difficult for overseas buyers in Australia, investment opportunities may be presented to domestic investors by this slowdown. This may also be good news for first home buyers, as less foreign interest may lead to an oversupply of properties and increased vendor discounting.
Factoring in the prospect of rate rises
Many property investors have been embracing an extended period of record-low interest rates and cheap debt. The last cut made to the official cash rate was over a year ago in August 2016, however investors should remain wary of the potential for change in the year ahead.
The RBA has been talking up the economy of late and this can indicate the potential that rates may start to come up.
I believe property investors should be paying close to attention to ensuring their financial situation can cope with higher interest rates, and the effects that even a small shift upwards could have on repayments.
It may be worthwhile considering a component of fixed and a component of variable interest rates, and to make debt reductions through the variable components of the loan.
The coming year will likely continue to be a balancing act for the RBA. Whilst rate rises might slow some areas, it will be important to consider the impact upon other markets such as Perth and Darwin that are coming through the other side of the real estate cycle.
Overall, it appears many seasoned investors may be sitting on the fence at this point in time, knowing there may be good opportunities arising in months to come.
In preparation, investors may benefit from consulting professionals to solidify their New Year investment strategies. Working with expert financial and real estate practitioners will be invaluable to determine the best approach to any property transactions in light of personal circumstances