Property Buyers and Investment Alternatives.

by Steve Wilkinson

This week at our Business Leaders meeting, I talked about two things that relate to residential property. Residential property was on my mind because I had just read through the latest RP Data quarterly report, and it raised a couple of issues in my mind.    

The first issue relates to the fact that lenders are tightening up on investment property lending. This tightening is largely driven from comments made by the Reserve Bank (RBA) and reinforced by the Australian Prudential Regulation Authority (APRA). The concern is that on March 15, investors committed to $11.9b of housing finance - an increase of 20% over the previous year. One reason that this makes the RBA nervous is that they are wanting to boost the housing sector using low interest rates, but understand that the investment portion of the housing market adds more volatility to the mix; when things get tight, investors have a greater propensity to sell, and this helps to drive prices down more quickly. So now lenders are requiring bigger deposits from investors, and in many cases charging higher interest rates for investment property loans, so it is a good time for investors to consider alternatives to investment property. For example, house prices in the Brisbane market over the past 5 years have hardly moved (-0.3%) with rent increasing an average of 2.1% over the same period. Compare this to a typical balanced managed fund delivering  9% per annum over the same term, and you have to ask why investors wouldn't at least be looking at the alternatives when making investment decisions.

The other issue is the all time low levels of first time buyers entering the property market, but that's topic for another day.