[+] Private Investors Eye Opportunity as Rate Rises Roll On

Money talks. And in a housing downturn it is the high net-worth individuals and private equity that will keep the market afloat in 2023. Investor home loan commitments dipped 28.3 per cent in 2022, but economists are predicting their resurgence in the year ahead as market fundamentals ripen. Speaking at The Urban Developer’s Sydney Economic and Property Outlook event, KPMG chief economist Dr Brendan Rynne said investors would rise again in housing as interest rates bite. “A third of the population own a home and have a mortgage, a third of the population own a home and don’t have a mortgage, and a third of the population rent privately or through the government,” Rynne says. “Who feels it first is those with a mortgage and then it’s renters, but that’s delayed because it’s only when a new lease is struck that rent goes up. “And then arguably those that own a home are the safest. They are on the opposite side of the coin and probably benefit from higher interest rates because they’ve probably got savings.” There are some 80,000 fixed-rate mortgages worth about $370 billion that are due to be unwound this year and it signals a rocky time ahead for Australia’s economy, according to Rynne. “The average mortgage rate of outstanding three-year loans that are current as at the end of January, the differential between that and the new variable mortgage rates is 2.75 per cent,” he said. ▲ KPMG chief economist Dr Brendan Rynne speaking at The Urban Developer’s Sydney Economic and Property Outlook event. “Household interest payments are going to rise to be 11 per cent of the household income. That’s going to push households hard. “While technically it’s not going to be a recession … it’s going to feel like one. We have the highest level of inflation for at least 30 years. “Interest rates is the primary weapon we’ve got, we’ve seen nine consecutive cash-rate increases. It’s the highest rate we’ve had since about 2012. Arguably we’ve kept it down for too long, we have stimulated the economy too much.” The private rental market is continuing to grow as investors see plenty of upside across Australia in property upswings, with investors focusing on Sydney, Melbourne and Brisbane. Property Council of Australia’s newly annointed chief executive, Mike Zorbas, says supply and housing choice are key to putting downward pressure on house price growth and rent prices. “The fundamentals of the Australian economy are continuing to hold up in the first few months of the year and skilled migration is rising but interest rates will dominate most people’s short-term approach to the housing market,” Zorbas says. “The balance for the RBA will be managing inflation down without over cooling the market and making future housing supply harder to smoothly plan for. ▲ Property Council of Australia chief executive Mike Zorbas. “I can’t say this enough—supply and choice are essential to meet the needs of our growing population. Every extra house or apartment built puts downward pressure on the cost of buying or renting a home in that market.” About 80 per cent of Australia’s residential rental properties are owned by private landlords, a trend that REIA president Hayden Groves says is not likely to shift. “Secure income remains a key component of attracting investment and residential real estate traditionally enjoys prolonged periods of sustained income and low vacancies,” Groves says. “As populations grow, demand for housing comes with it, ensuring investors with a long-term view a strong prospect of capital gain in a favourable tax environment. Having said that, real estate is not exclusive to one group. We encourage investment in Australia’s houses and buildings unequivocally be it mum-and-dad investors, foreign investors, and institutional investors. “However, private investors make up the absolute lion’s share of the market, something not likely to change anytime soon. Through our membership we manage a combined $3 trillion in property assets that are part of Australia’s residential rental pool.” Nearly 3 million Australian households, about 31 per cent, are renters—26 per cent are renting from private landlords and 3 per cent are renting from state or territory housing authorities, according to the National Housing Finance and Investment Corporation December 2022 figures. Rent rates are increasing after being affected by the global pandemic. Across Australia the increases have hit double figure percentages and there are no signs of that abating. ▲ Corelogic head of research Eliza Owen: lockdowns led to renters spreading out across the housing market. “For the combined capital cities, rent values are up 10.9 per cent across all home types,” CoreLogic head of research Eliza Owen says. “This includes a 9.5 per cent lift across house rents and a more acute rise of 14.2 per cent across capital city unit rents. “In Melbourne and Brisbane, annual rent growth is just passing through record highs, while annual rent growth in the Sydney home market is currently at a record high of 11.5 per cent. “In the Sydney market this has more recently been driven by unit rents, while growth in house rents has started to ease. The unit rental market experienced the highest uplift in Sydney, where rents have increased 15.9 per cent in the past year. Brisbane had the highest uplift in house rents of the capital city markets at 12.5 per cent.” Owen says it seems lockdowns led to the breakup of a lot of share-house arrangements and renters in particular ‘spread out’ across the housing market. “The RBA estimated that through lockdown periods, this led to higher absorption of housing stock, and added to housing demand to the volume of about 140,000 dwellings. The phenomenon tightened the rental market and reduced the available rental stock on the market,” she says While economists predict a further three cash rate rises this year, there is no denying it’s a landlord’s paradise in 2023. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Private Investors Eye Opportunity as Rate Rises Roll On

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[+] Private Investors Eye Opportunity as Rate Rises Roll On

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