The Reserve Bank is talking about throwing a wet blanket on property investor activity, so what does that mean for any would-be investors out there?
Loans to property investors hit an all-time high in July, accounting for almost 50 per cent of loans written to buy houses.
The RBA says there’s now an imbalance with new lending to investors is out of proportion to rental demand.
Ben Kingsley, chair of the Property Investment Professionals of Australia, said would-be investors should focus on their own financial situation rather than external factors when deciding whether it’s the right time to invest.
“Don’t be one of the sheep. Do your own sums, look at your own situation,” he said.
Although investor activity is rising sharply, the market is playing catch-up after a long period of underperformance, he said.
He said rental vacancy rates were at just two per cent in Sydney, whereas it would normally be around three per cent in a balanced market.
The reason there are still plenty of renters around is because first-home buyer levels are at record lows but, contrary to popular belief, it’s not necessarily because investors are locking them out.
“This is a supply problem, not necessarily a demand problem, but it’s also a sign of the times,” he said.
“We’re seeing this affordability debate and this debate about investors pushing the market higher when, in reality, there are affordable houses out there but people are voting with their feet and wanting to stay close to the city locations, and that’s where the real activity and real value growth is occurring at the moment.”
Douglas Driscoll, chief executive of real estate group Starr Partners, said investors currently accounted for almost 40 per cent of their transactions, compared to about 10 per cent two years ago.
In some suburbs, like apartment-dense Parramatta in Sydney’s west, investors account for more than 60 per cent of transactions, he said.
“We are now seeing an incredible level of investors hitting the market and, as a nation and developed economy, it’s very healthy to sometimes just stop, assess what we’re doing and think about our actions today and what the ramifications are for tomorrow,” Mr Driscoll said.
Research is needed to identify the true level of foreign investment in Australian property, Mr Driscoll said.
He’s also concerned about whether the wave of new investors have considered the fact that interest rates will rise one day.
But, if you’ve done your homework, property investment is a wonderful way to grow your money, he said.
TIPS FOR WOULD-BE PROPERTY INVESTORS
* Beware of dodgy property investment advisers
* Remember that property is a long-term investment and prices don’t always go up
* Consider future rate rises and worst-case scenarios, like not having a tenant for months
* Research a suburb’s supply and demand levels before buying
* Be wary of paying too much for new/off-the-plan properties
* Avoid interest-only loans and consider a fixed rate
14 October 2014