Property investors now amplify the cycle – long-term projections of the strongest and weakest markets
05 Jul 2021

Précis

Property investor activity has been greatly varied across the country. 


While in the short-term areas with robust investor activity can experience strong capital growth, a better question is what investor activity can tell us about the medium and long term?


Riskwise Property Research has analysed the connection between investor activity to long term capital growth and applied the results to the current investor activity across capital cities.


Pete Wargent, co-founder of national buyer’s agency BuyersBuyers.com,au said “property investment is a long-term game. Investors would be well-advised not to focus too much on short-term trends, and instead pay heed to long-term projections”. 


The market impact of property investors


Doron Peleg, CEO of Riskwise Property Research, said “our research has previously shown the strong link between property investor activity and the health of the housing market, including a demonstrable impact on dwelling price growth”


“In effect, property investors now amplify the cycle, both on the upswing and the downswing phases of the property market cycle” Mr Peleg said. 


“For example, in the lead up to the Australian Federal election in May 2019, credit restrictions and proposed changes to the taxation legislation for property investors significantly stymied investor activity, and the housing market tipped over into a downturn”. 


As a consequence of the great hesitancy in the market, investor activity across Australia began to decrease from the second half of 2017.


According to the Reserve Bank of Australia’s figures, annual investor loan credit growth had fallen from 5 per cent in April 2017 to just 2½  per cent by March 2018. 


The downturn in activity was particularly noticeable in markets with a high concentration of investors, including in parts of Sydney. 


Dwelling prices in Sydney and Melbourne, in turn, initially showed a decelerating growth rate, followed by price reductions in Sydney and, to a lesser extent, Melbourne.


Figure 1 – Investor activity and house price growth




The current market climate


Property investor activity is presently strongest in New South Wales.


And again this is being reflected in housing market activity, and prices, with Sydney housing prices leading the capital cities in term of price growth, and numerous regional markets up and down the New South Wales coast also recording extremely strong results. 


Investor activity is also presently relatively buoyant across the housing markets of Victoria and Queensland respectively, with coastal and lifestyle markets such as Mornington, Sunshine Coast, and Gold Coast all faring particularly well, as well as numerous other coastal and lifestyle markets, such as the Central Coast and northern NSW coast.


Figure 2 – Current property investor market proportion

Over time, property investor activity tends to be driven by and encouraged by strong economic conditions, as well as population growth which increases the demand for rental properties.


For example, investors were highly active in Western Australia throughout the mining boom years, but far less so after the peak of the resources construction.


The Northern Territory has also been in a protracted economic and property market downturn since the heady peaks in activity of around 2012 but has since benefitted from a surge in relocations to the Top End in a bid to seek space away from the coronavirus pandemic. 


Once again we can see this has been reflected in property investor activity and stronger housing market performance, though at the time of writing Darwin is grappling with the prospect of lockdowns as some cases of the virus have been found in the Northern Territory capital. 



Figure 3 – Northern Territory investor activity and house price growth




Summary and the outlook


Mr Wargent of BuyersBuyers.com.au said “the research is clear: property investors clearly now amplify the cycle, both on the upswing and the downswing phases of the property market cycle. So market participants need to take note of this and invest accordingly”.


Riskwise research showed that prior to Covid-19, Australia had a high rate of net overseas migration, which boosted the demand for rental properties. 


The pandemic saw net overseas migration grind almost to a halt, meaning that the demand from property was largely driven by the natural growth in the population (births minus deaths), and in particular internal migration to lifestyle markets and properties offering more space. 


Since the pandemic began, capital cities with low investor activity - but were considered safer places to live - such as Perth and Darwin - have been experiencing property price increases due to internal migration. 


Mr Peleg of Riskwise said “however, without structural economic changes, price increases for areas with low investor activity are likely to be limited to the short term”. 


“In the short-term rental shortages in markets such as Hobart and Adelaide can also result in a spurt of property investor activity and dwelling price growth”. 


“Over the medium and longer term, however, it is highly likely that areas with stronger projected economic and population growth (and therefore high investor activity) such as NSW, VIC and southeast QLD will generally outperform other property markets around Australia” Mr Peleg said. 


Figure 4 – Investor activity ratio and average house price growth




Mr Wargent of BuyersBuyers.com.au concluded that “due to transaction costs and taxes, property investment tends to work most effectively as a long-term game” 


“Therefore investors be well-advised not to focus excessively on short-term trends, and instead pay heed to long-term projections”. 


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