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Thought property investors were sitting on the sidelines? They’re back
Lending to property investors has reached a six-year high as a share of total home lending, far outpacing the proportion that goes to first home buyers.
Just over 36 per cent of all housing finance in December went to investors, ABS figures show, up from about 23 per cent in the final months of 2020 as buyers bank on the chance of improved investment returns. The last time it was higher was in 2017.
This compares with the first-home buyer share of finance which is about 18 per cent, and has also been picking up but remains a smaller slice of the pie than during the Home Builder grant era.
Most finance goes to owner-occupiers who are not first home buyers, but this group has been shrinking as a share of all finance over the same period.
Even as the distribution changes, the total value of home lending has been on the rise over the past year, albeit to lower levels than at the peak of the pandemic property boom about two years ago.
CoreLogic head of Australian research Eliza Owen said investor borrowing had recovered faster than other types of buyers, meaning it had gained share relative to the total.
Investors were looking forward to the prospect of interest rate cuts that could push property prices up.
“The recovery in investor finance began in March of 2023, which is pretty soon after the market bottomed out in value terms, so there’s a sense of taking advantage of the bottom of the cycle,” she said.
“As a proportion of housing lending it could continue to rise, but the overall value did falter a little bit in the month of December against higher interest rates.
“A lot will be dependent on interest rates but where population growth is at the moment versus the amount of dwelling supply, a lot of investors see certain markets across Australia as a good capital growth opportunity still and want to get in before interest rates come down.”
The share of lending to property investors is at a six-year high.Credit: Steven Siewert
By state, in NSW, investor lending now makes up more than 40 per cent of all housing finance, while first home buyers are about 16 per cent.
In Victoria, investors also outnumber first home buyers, although not as sharply. Lending to investors comprises more than 31 per cent of the total, compared to 21 per cent for first home buyers.
A similar pattern held in Queensland (over 36 per cent investors, 16 per cent first home buyers) and in WA (almost 35 per cent investors, 21 per cent first home buyers).
Property investors have been in the spotlight in the past week after Senate crossbenchers called on the major parties to scale back the use of negative gearing on investment properties.
“If we want… to not have housing where it’s arguably easier to buy your second house than your first house, then you’ve got to look at the tax system,” independent senator David Pocock told ABC Radio last week.
AMP chief economist Shane Oliver said the share of lending to investors had been rising from a low base, and earlier peaked in 2015 at 46 per cent of housing finance.
A series of crackdowns from the bank regulator made it harder to get an investment loan, while first home buyers’ share rose until 2020 helped by government incentives.
Then ultra-low interest rates helped investor lending recover, then track sideways as rates started to rise, then pick up again more recently, he said.
He said that although many investors had been constrained by higher interest rates and were now cash-flow negative, owner occupiers had been hit harder.
“Investors have been under pressure from higher interest rates to run a property and be cash-flow positive, but owner occupiers have been under more pressure because they don’t have the benefit of negative gearing,” he said.
“They [investors] can offset those higher interest costs by reducing their tax bill.”
But he warned that any significant reduction in investor activity could mean less supply of rental properties, which could result in higher rents.
PRD Real Estate chief economist Diaswati Mardiasmo said although some investors were selling their properties as their mortgage repayments rose, at the same time others have been buying back in.
Many have been able to purchase units for cheaper prices than at the peak of the pandemic property boom in 2021 and early 2022, she said, while rental vacancy rates are low and the rental market is tight.
“They weren’t able to buy an investment property back in 2021, 2022 when we had that [pandemic] boom because the prices were too high,” she said.
“If you do buy now, at this softer price, the chance of it being occupied is still very high.”