Investor Lending for Property Climbs to Six-Year High, Surpassing First-Time Buyers

If you thought property investors had taken a back seat in the real estate market, think again. Recent data indicates that investors have been taking a considerable portion of the home lending pie, with their share of the total climbing to the highest point in six years. While first-time home buyers are often seen as significant players in the market, it's the investors who are currently leading the pack when it comes to securing loans for property acquisitions.

Investors Outpacing First-Time Buyers

December's numbers brought to light an interesting trend: a whopping 36 percent of housing finance was taken out by investors, according to figures from the Australian Bureau of Statistics. This represents a significant leap from the roughly 23 percent seen in late 2020 and is the largest slice of the lending pie that investors have claimed since 2017. In contrast, lending to first-time buyers stands at around 18 percent, despite seeing a modest uptick. This percentage pales in comparison to the percentages recorded during the Home Builder grant period.

An Overview of the Lending Landscape

Most of the housing finance is still dominated by non-first-time owner-occupiers, though this group's dominance has slightly waned. Despite the redistribution of finance shares across different buyer groups, the aggregate value of house lending has generally been on an upward trajectory over the past year. Nonetheless, it hasn't quite reached the heights seen during the peak of the pandemic-driven property boom a couple of years ago.

Eliza Owen, CoreLogic's head of Australian research, has observed that investor borrowing has seen a more rapid recovery when compared to other borrower types. This rebound in lending to investors seems to be motivated by optimism regarding future interest rate cuts that could potentially elevate property prices. Owen pointed out that the upward trend in investor finance started in March 2023, just as the market was recovering from a low point in property values, suggesting a strategic move by investors to capitalize on the market cycle. The predominance of investors in housing lending could see further growth, though the overall value did face a slight setback in December due to rising interest rates. Prospects of interest rate cuts and the current balance between population growth and dwelling supply are, however, giving investors enough confidence to bank on future capital growth opportunities in several Australian markets.

Regional Breakdown and the Impact of Policy

Different states show varying levels of investor lending. For instance, New South Wales has more than 40 percent of its housing finance going to investors, while Victoria and Queensland also show a strong presence of investors in the lending market. In the context of housing affordability and policy, the role of negative gearing on investment properties has been brought into the spotlight. Voices within the Senate have called for a rethink on how this policy impacts the ease of acquiring additional homes as opposed to first homes.

Experts like Shane Oliver, AMP's chief economist, point out that the mounting share of investor lending comes off a low base and once peaked in 2015 at 46 percent. Despite the first home buyers gaining ground until 2020 with help from government incentives, investors have regained their footing, fueled initially by ultra-low interest rates. Oliver cautions that while many investors may be feeling the pinch from rate hikes, owner-occupiers are under greater pressure, lacking the offsetting tax benefits of negative gearing that investors enjoy. Yet, a significant drop in investor activity could lead to fewer rental properties and consequently higher rents.

According to Diaswati Mardiasmo, chief economist at PRD Real Estate, some investors are offloading their properties due to increased mortgage repayments. Concurrently, others are seizing the opportunity to buy, particularly units which are now more accessible price-wise compared to the peak times of the 2021 pandemic property boom. With low vacancy rates and a tight rental market, investing now at softer prices still promises a high likelihood of occupancy.

property, investment, finance