The lower end of the housing market could get even more competitive in the coming months according to experts. Oscar Colman
Demand for homes priced under $800,000 could intensify in the coming months as investors and first-home buyers return into the market in droves and compete for affordable stock, experts say.
Tim Lawless, CoreLogic research director, said the stronger-than-expected house price growth in the past 15 months and expectations of further capital gains were enticing investors back, while the tight rental market prompted more renters to buy.
Lending to investors surged by 3.8 per cent to $10.2 billion in March, lifting the annual growth by 31.1 per cent.
The share of investor loans has now blown out to 36.8 per cent of the total lending, the highest level since May 2017 according to the Australian Bureau of Statistics.
However, it remained below the 45.2 per cent peak reached in late 2014 after the Australian Prudential Regulation Authority and ASIC stepped in to slow investment credit growth.
“It’s quite the turnaround from what we’re seeing in early 2023 when there were a larger number of investors looking to sell than buy, largely due to the sharp falls in home values at the start of the interest rate cycle,” Mr Lawless said.
“I think the entrenched house price growth which is typically the main motivator for investors, and also the fact that the rental markets are so tight and are expected to remain tight probably enticed a lot of investors to get in.”
First-home buyer loans climbed by 4.4 per cent to $5.2 billion over the month and lifted by 17.9 per cent in the past 12 months to March.
Mr Lawless said first-home buyers will be pitting themselves against investors in the affordable end of the housing market.
“We’re already seeing competitive pressure to the lower end of the marketplace where investors and first time buyers tend to be more active, which could be behind the recent stronger gains in that segment,” he said.
“Beyond just investors and first-time buyers, even subsequent buyers potentially becoming more limited in their ability to obtain credit would turn to the middle to lower end of the market.”
Scott Kuru, co-founder of Freedom Property Investors said the current interest rate levels typically limit borrowing capacity to around $750,000 for most investors and first-home buyers, depending on their financial situation.
“I expect demand for properties priced under $800,000 to increase substantially and become even more competitive as more buyers are priced out of the market,” he said.
“I think this is the sweet spot for most investors and first-home buyers because of the limited borrowing capacity due to high interest rates.”
Investors were most active in Perth in the past year, lured by the city’s strong performance since interest rates started rising and their cheaper price points, according to CoreLogic.
Affordable suburbs such as Armadale, Camillo, Brookdale and Maddington where median house values stayed under $600,000 were highly sought after.
Investors who bought in those suburbs were rewarded with capital growth ranging between 36.4 per cent and 42.2 per cent or around $150,000 gains in the past year. Meanwhile, the strong rental increases, which produced around 5.5 per cent gross rental yields also delivered better cash flow for investors.
Units in Southbank, Travancore and Brunswick East where investors were also active in the past year, achieved stronger results compared to the broader Melbourne market.
Values lifted by 6.2 per cent in Southbank and Brunswick East and jumped by 9.3 per cent in Travancore over the past 12 months. During the same period, gross rental yields increased to 5.9 per cent, 6.7 per cent and 5 per cent respectively.
In Sydney, units in Lakemba and North Parramatta delivered 9 per cent and 7.7 per cent capital growth and up to 6.1 per cent gross rental yields.
Arjun Paliwal, head of research at InvestorKit said Bundaberg and Townsville in Queensland, Barossa Valley in Adelaide and Bunbury in WA could experience the next growth spurt.
“These affordable markets are generating a lot of interest because they have strong fundamentals such as low supply and strong demand, but more importantly, they are affordable for people who have limited borrowing capacity,” he said.
“Investment properties in these areas are also achieving healthy rental yields, making it easier for investors to hold them particularly if rates stay higher for longer.”
Kent Lardner, director of Suburbtrends is tipping Denman in the Hunter Valley, Fairview Park in Adelaide, Seabrook in Melbourne and Wellington Point in Brisbane as the next growth suburbs, boosted by strong demand and scarce supply.
“Houses in these areas are typically below $700,000 which are becoming increasingly rare as the market heats up,” he said.
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