Latest NewsHousing Investors Take up SlackWednesday, 11 January 2017

Investors are being lured back into the property market through the prospect of higher rents and price growth, helping to pick up the slack from departing first-home buyers.

Even though rents are rising more gradually than expected, housing investors are taking up a bigger share of the housing market, the latest figures show.

Investors' share of housing sales is up to 31 per cent, the figures show, up from last year's low of 24 per cent, which was triggered by the first-home buyer boom.

Unlike other buyers, housing investors also continued to increase their borrowing despite interest rate rises until February, when investor loan commitments fell a relatively gentle 1.1 per cent.

Yet this spurt of interest has come amid slower-than-expected growth in rents. Median rents in Sydney were flat in the March quarter, according to figures from last week, while they edged up gradually in most other capital cities.

Coupled with rising prices, slow rent growth has pushed down yields - rental income relative to prices.

According to figures from the ANZ Bank, the average rental yield across all capital cities fell to 3.2 per cent in the December quarter, down from 3.38 per cent in September and 3.48 per cent June.

Despite this weakness, analysts say the investor segment of the market will keep growing, as both rents and house prices expand to meet a housing shortage.

"Investors are much less sensitive to interest rate rises, partly because they are more likely to fix their interest payments to provide more certainty for their budgeting, but also because they can offset some of their costs through negative gearing," the national research director at RP Data, Tim Lawless, said.

"With rental rates likely to increase over the coming year, it is likely we will start to see yield improvements across the broader market, which will provide a further yield-based incentive to property investors."

According to RP Data, the best inner-city rental returns for Sydney houses were achieved in Darlington and Waterloo, which posted yields of
5 per cent and 4.9 per cent, respectively.

Meanwhile, investors have shown reluctance to put their money into new housing, despite a NSW government grant that halved stamp duty on newly built houses worth less than $600,000.

The latest figures from the Office of State Revenue show it has provided
3148 rebates since the rebate was introduced in July, worth $23.9 million.

The program was initially budgeted at $64 million for at least the six months to last December, in an attempt to lift housing investment. It has been extended until the end of June.

Economists said the booming performance of the sharemarket last year and the huge rise in house prices may have also deterred some housing investors.

The head of property research at ANZ, Paul Braddick, said talk of a bubble may have also detracted from investor interest, but the outlook for the sector was broadly upbeat.

"If you believe the housing shortage story, then rents can only go one way from here," he said. 

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