Why investors are flocking to property in 2022
It’s official. Lending to property investors reached a record high of $11.0 billion in January 20221. So what’s driving investor interest?
Data from the Australian Bureau of Statistics (ABS)2 shows the value of new loans to property investors soared over the 15 months to January 2022 – hitting almost $11 billion in January alone, up from $4.2 billion in June 2020.
Eleanor Creagh, senior economist at REA Group, says the proportion of enquiries to real estate agents from investors is currently at the highest level in more than two years3.
Four key factors are driving the surge in investor interest. Here’s what’s happening.
1. Values could rise further
While property prices continue to rise nationally, Sydney and Melbourne have been experiencing a slower rate of price growth since the middle of 2021, and this may continue in 20224.
However, a recent PropTrack report5 notes that price rises in our more affordable cities – Brisbane, Adelaide and Hobart are showing little, if any, sign of slowing. Demand for properties in these markets remains much stronger than in the larger capital cities.
On the west coast, the Real Estate Institute of WA (REIWA) says the Perth property market is on track for another solid year of price growth6.
“REIWA members across Perth are reporting strong market conditions. We don’t anticipate the demand for property changing any time soon7,” says RIEWA President Damian Collins.
The upshot is that investors still have plenty of opportunities to notch up short term capital gains.
2. Borders have reopened
The inner city markets, particularly apartment rentals, have seen the largest prices falls since the onset of the pandemic – thanks chiefly to the closing of borders and universities shifting to virtual learning8.
But things are getting back to normal.
Australia’s domestic and international borders are reopening. Universities are returning to in-person lectures, and workers are heading back to offices.
With this reopening, the appeal of living closer to all the action will also rebound, encouraging students and younger professionals, to rent in inner city areas once again. This is good news for investors buying in inner metro areas.
3. Apartments offer value
Creagh explains that the premium of house prices over apartment prices has reached record highs, with the pandemic driving “one of the biggest shifts we’ve ever seen when it comes to housing preferences”9.
This has left units historically cheap relative to houses, and the added pressure in rental markets can be very appealing for investors looking for the affordability of units.
4. Vacancy rates are tight
According to SQM Research, Australia faces an acute shortage of rental properties10. The rental vacancy rate nationally dipped to 1.3% in January 2022 – a 16-year low.
The shortage of available rental properties has already been translating into large surges in weekly rents across the country. And SQM Research believes market rents could rise by over 10% this year.
This spells extra rental income for investors during a period of very low interest rates.
Property investor guide
Our free, downloadable guide explains the costs and steps associated with the purchase of an investment property, positive/negative gearing as well as pros and cons of houses vs. units.
The verdict
The upshot is that many of today’s investors may be looking to make the most of the rental recovery and the apartment discount, combined with interest rates that still offer great value.
If a rental property is on your radar, check in with your Mortgage Choice broker to see how you can get started with your property goal.
