Tide Turns for Investors - RP Pulse 17/07/09

Since the onset of the Global Financial Crisis investment in Australia’s residential markets has seen a lacklustre performance where investors have been somewhat thin on the ground - however investors are starting to venture back into property on the back of strong rental yields and an overall improvement in confidence.

One of the most useful ways to understand the ratio of owner occupiers to investors in the residential market is to analyse housing finance commitments. This data is published by the Australian Bureau of Statistics and acts as a very good barometer of future levels of market activity.

Both owner occupier and investor finance commitments started to trend downwards at the beginning of 2008 as interest rates reached a peak and the reality of the global financial crisis crystallised.

Home buyers were much quicker to return to the market, responding to low interest rates, the boost to the First Home Buyers Grant and strong buying conditions. Since September last year the value of owner occupier housing loans has increased by a whopping 42 percent. Over the same period the value of investment loans increased by a comparatively small 6.6 percent.

The tide turned for investors much later, with the value of investment loans continuing to decline up until the end of February ’09; the last time the level of property investment was this low was back in 2002. Since this time investor finance commitments have been moving upwards, increasing by 18 percent to the end of May.

The return of investors to the market was delayed due to several reasons. Investor confidence had been eroded significantly; not just by the state of the global economy but also by the shock of seeing share portfolio’s halve in value and the prophets of doom and gloom suggesting property values were likely to do the same. With Australian property values proving to be very resilient, and, in fact showing modest increases since the start of the new year, investor confidence is likely to have improved markedly.

Investors are also likely to be waiting for first home buyer activity to start winding back before moving back into the market en masse. There is a considerable overlap between investor and first home buyer buying preferences, with both segments often targeting similar properties. Investors are likely to shy away from such competition. As the deadline approaches for the wind back of the First Home Buyers Boost (the boost will be halved on October 1st and removed entirely on January 1st) investor numbers are likely to gather further momentum.

In terms of the peak investment timing, investors who are prepared to buy now are likely to be buying into the market at a very attractive time. Rental rates have increased by 34 percent over the last three years and now appear to be peaking. Securing a rental lease at peak rental rates has obvious benefits for an investor with regards to cash flow.

The rise in rental rates, together with overall flat property prices over the last year has resulted in solid gross rental yield improvements. Nationally, houses are now returning a gross rental yield of 4.5 percent and units are returning 5.3 percent. Darwin is providing the best gross yields at 6.4 percent and 6.1 percent for houses and units respectively.
 

Additionally, for those investors who are targeting properties priced over $500,000, competition in the market is comparatively light. Some of the most popular investment regions are likely to be found closer to the city, within the inner and middle rings of the capital cities where first home buyers are generally priced out of the market. 

Since the onset of the Global Financial Crisis investment in Australia’s residential markets has seen a lacklustre performance where investors have been somewhat thin on the ground - however investors are starting to venture back into property on the back of strong rental yields and an overall improvement in confidence.

One of the most useful ways to understand the ratio of owner occupiers to investors in the residential market is to analyse housing finance commitments. This data is published by the Australian Bureau of Statistics and acts as a very good barometer of future levels of market activity.

Both owner occupier and investor finance commitments started to trend downwards at the beginning of 2008 as interest rates reached a peak and the reality of the global financial crisis crystallised.

Home buyers were much quicker to return to the market, responding to low interest rates, the boost to the First Home Buyers Grant and strong buying conditions. Since September last year the value of owner occupier housing loans has increased by a whopping 42 percent. Over the same period the value of investment loans increased by a comparatively small 6.6 percent.

The tide turned for investors much later, with the value of investment loans continuing to decline up until the end of February ’09; the last time the level of property investment was this low was back in 2002. Since this time investor finance commitments have been moving upwards, increasing by 18 percent to the end of May.

The return of investors to the market was delayed due to several reasons. Investor confidence had been eroded significantly; not just by the state of the global economy but also by the shock of seeing share portfolio’s halve in value and the prophets of doom and gloom suggesting property values were likely to do the same. With Australian property values proving to be very resilient, and, in fact showing modest increases since the start of the new year, investor confidence is likely to have improved markedly.

Investors are also likely to be waiting for first home buyer activity to start winding back before moving back into the market en masse. There is a considerable overlap between investor and first home buyer buying preferences, with both segments often targeting similar properties. Investors are likely to shy away from such competition. As the deadline approaches for the wind back of the First Home Buyers Boost (the boost will be halved on October 1st and removed entirely on January 1st) investor numbers are likely to gather further momentum.

In terms of the peak investment timing, investors who are prepared to buy now are likely to be buying into the market at a very attractive time. Rental rates have increased by 34 percent over the last three years and now appear to be peaking. Securing a rental lease at peak rental rates has obvious benefits for an investor with regards to cash flow.

The rise in rental rates, together with overall flat property prices over the last year has resulted in solid gross rental yield improvements. Nationally, houses are now returning a gross rental yield of 4.5 percent and units are returning 5.3 percent. Darwin is providing the best gross yields at 6.4 percent and 6.1 percent for houses and units respectively.
 

Additionally, for those investors who are targeting properties priced over $500,000, competition in the market is comparatively light. Some of the most popular investment regions are likely to be found closer to the city, within the inner and middle rings of the capital cities where first home buyers are generally priced out of the market.

Steady Rents give Tenants and advantage..but for how long?

Sydney Morning Herald 10/07/09 - Clancy Yeats

RENTS in Sydney stayed flat in the three months to June, giving tenants the upper hand in negotiations with landlords, a report says. 

The typical rent proposed by owners in Sydney stayed at $450 a week in the June quarter as rents stalled in all capital cities, but analysts said the good times for tenants could be shortlived. 

It is the second quarter in a row during which asking rents have been flat, as property investors adjust to economic conditions where tenants have more housing options. This limits the scope for rent rises. 

Asking rents have still risen 7.1 per cent over the year to June, but this compared with a 15 per cent rise recorded last year, according to the figures from Australian Property Monitors. 

The news comes amid a fall in interest rates to 40-year lows, which has made buying a house or unit much more affordable. 

An economist at APM, Matthew Bell, described it as the biggest shift in favour of renters since figures were first collected in 2003. "It's a lot easier for tenants to move into ownership than it has been for a long time. Renters have that alternative open, and landlords know it." 

Mr Bell said the dwindling labour market - which shed 21,000 jobs last month, according to figures published yesterday - also limited tenants' ability to pay rent increases. 

However, other indicators point to a looming housing shortage. Approvals for new apartments and townhouses in NSW fell to a 26-year low in May, and vacancy rates hit a 12-month low of 1 per cent. 

At $450 a week, Sydney rents are second only to those in Darwin , where a typical house can be let for $500 a week. One reason for the mixed messages on Sydney 's rental market is that the situation varies geographically. 

Figures from SQM Research show Sydney had the highest vacancy rate of all capital cities in May, at nearly 8 per cent, but it varied wildly between suburbs.

More than one in 10 rental properties were unoccupied in the city and Vaucluse, while in Liverpool and Bankstown the vacancy rate was below 3 per cent.

The firm's managing director, Louis Christopher, said the economic crisis had taken a particularly hefty toll on luxury rental properties.

"This city has been particularly impacted by the global financial crisis, and that has meant that a lot of upper-end homes and apartments have been running vacant for quite a while."

Strong Population growth Continues to drive demand for housing - RPPulse 10/07/09

At the same time last year, RP Data reported that record overseas migration levels coupled with rising fertility rates resulted in the strongest population growth figures in almost 20 years. Well, the trend’s continuing.

Australia is currently undergoing a boom in population with the current rate of growth the highest since the baby boom of the 50’s and 60’s. The latest figures released by the Australian Bureau of Statistics (ABS) reveal that Australia’s population increased by 1.9% or 406,083 new residents over the 2008 calendar year. Australia’s total population now sits at more than 21.6 million people.

 

At the national level, the two components of population growth measured are overseas migration and natural increase (ie. total births minus total deaths) both indicators are trending upwards, and both indicators are sitting at historic highs.

Over the 2008 calendar year net migration (arrivals vs. departures) was recorded at 253,415 persons. This was an exceptionally strong increase on the already strong figure of 184,438 recorded during 2007. Migration is likely to fall during 2009 with the Federal Government cutting back on the number of skilled migrants allowed into Australia. In March, the Government announced it would cut the 2008-09 skilled migrant intake by 14 per cent. The latest budget announced migration would be cut even further equating to a total drop of about 20 per cent down to 108,100 skilled migrant places for 2008/09. The net migration figures are unlikely to reflect a total fall of 20% due to the fact that the economy and job prospects are stronger in Australia than most other countries throughout the world. Given this, the total outflow of residents is also likely to reduce during 2009.

The rate of natural increase (or births minus deaths) has also increased – likely to be driven higher by the ‘baby bonus’ and the trend of more overseas migrants having larger families. The national fertility rate has increased from 1.7 children per female back in 2002/03 to 1.9 in 2007/08.

On a state-by-state basis Western Australia remains the fastest growing state with population growth recorded at 3.1%. The resources sector has continued to offer significant employment opportunities throughout the state during 2008 however, this is likely to abate in the coming year. Western Australia’s population growth has well and truly been fuelled by overseas migration which has accounted for 40,614 new Western Australian’s or almost 62% of the state’s population growth.

Looking at raw numbers, Queensland has recorded the highest number of new residents with just under 107,000 new Queenslander’s during 2008. Queensland’s population growth is being bolstered due to the fact that the state enjoys the nation’s strongest interstate migration flow as well as strong natural increase and overseas migration numbers. Just behind Queensland, Victoria saw its population increase by 102,406 persons through 2008 with the increase primarily due to overseas migration (66.2%).

Whilst the Government’s announced cuts to migration will have an impact on population growth over the next year, levels are likely to remain relatively high as birth rates continue to improve and fewer residents leave for overseas jobs.

Population growth continues to remain a very strong indicator of housing demand. Strong population growth in recent years directly relates to strong demand for housing, particularly new housing. Both building approvals and commencements have continued to trend downwards at a time where population growth is powering ahead.

Based on the average household size across Australia, which is projected by the ABS to be 2.48 persons in 2008, this level of population growth has created demand for approximately 164,000 new dwellings. Only 147,000 residential dwellings were commenced last year, highlighting the fundamental undersupply of dwellings across the nation (and this doesn’t take into account dwelling demolitions).

 

  

Rental Vacancy Rates Slide Across NSW - AAP 25/06/09

Rental vacancy rates across NSW have dropped even further with Sydney recording its lowest rate in 12 months, Real Estate Institute figures show.

The Hunter, Central Coast, Sydney and the Illawarra have fewer rental properties available, new monthly figures from the Real Estate Institute of New South Wales (REINSW) show.

Sydney’s vacancy rate plunged 50 basis points from 1.5 per cent in April to 1.0 per cent in May.

“This is the lowest result recorded since May last year and is extremely disappointing,” REINSW president Steven Martin said in a statement.

Over the same period, available rentals dropped in the Illawarra from 1.9 per cent to 1.6 per cent.

In the Hunter, rates fell by 20 basis points to 1.7 per cent.

Mr Martin said first-time home buyer grants and record low interest rates had not boosted rental vacancies.

“These results are a double-edged sword - great news for landlords but grim news for tenants,” he said.

< Prev		Next >