Property investors mindful of RBA’s warnings
The Reserve Bank of Australia’s (RBA) repeated warnings about the heated housing market are starting to resonate with property investors. More generally, household expectations for further price gains are easing.
For the moment however, Australians with two or more investment properties remain the household segment most likely to buy a property in the next 12 months.
Digital Finance Analytics’ (DFA) regular survey of households for September showed that over 70 per cent of portfolio property investors intend to buy another property in the coming year, returning to the levels last seen in 2013.
In contrast, only around 45 per cent of households with a single investment property intend to add to their portfolio, down from almost 70 per cent last year and around 65 per cent at the beginning of the year.
The percentage of uncommitted but aspiring first-time buyers, committed first-time buyers, refinancers and upgraders planning to transact have also fallen in recent months.
Downsizers still active but impact underestimated
Downsizers join portfolio property investors as another exception, with the percentage expecting to buy in the next year continuing to edge up to almost 50 per cent.
There are more than a million households in the downsizer category and DFA’s principal Martin North believes their impact on the housing market is widely underestimated.
Their main motivation for selling the family home for something smaller is convenience, followed by releasing capital for retirement and to incorporate an investment property into their retirement savings strategy.
Given downsizers don’t tend to borrow, North said this explains why there’s so much demand for investment property yet overall housing credit demand isn’t correspondingly strong.
Tax and low rates motivate investors
When considering why so many Australian households are opting to invest in property, more than 30 per cent cited the associated tax benefits, namely negative gearing and the treatment for self-managed superannuation funds.
According to associate professor Dale Boccabella from the University of New South Wales’ Business School, negative gearing reduces income tax revenue in Australia by $13 billion per annum. That figure has risen substantially in a decade. In 2001 it was just $600 million, he said.
The attraction of likely price appreciation was nominated by about 28 per cent but that’s down from around 33 per cent earlier in the year, while 20 per cent noted property investment generated better returns than deposits and almost 15 per cent nominated the relatively cheap funding available.
DFA also surveyed investors about what was holding them back from buying and 20 per cent cited the warnings from the RBA, while a smaller proportion were also concerned that prices were now too high, that a hike in interest rates is on the horizon and potential regulatory changes.
Bullish, but less so, on property prices
Across the board households remain confident that house prices will continue to rise in the next 12 months although the percentage of bullish households is lower than in 2013.
By household segment, the most bullish are property investors and households not looking to buy or sell. Households committed to buying their first home are the next most optimistic about house prices, followed by refinancers.
The percentage of aspiring first-time buyers expecting price gains has halved from around 90 per cent in 2013 while downsizers have consistently been the least bullish on prices, with less than 30 per cent predicting further price increases in the coming year.
Another factor that may take some heat out of the mortgage market is waning appetite to refinance. The percentage of households looking to refinance their mortgages in the coming year has fallen from over 30 per cent in May to less than 20 per cent.
According to North, “many refinancers will have now locked in at low rates, as the main reason is to reduce monthly outgoings.”
That was the motivation of around 37 per cent of households looking to refinance.
- property, RBA, housing market, Digital Finance Analytics, DFA, University of New South Wales’ Business School, negative gearing
- Marion Williams, email@example.com
- Article Posted:
- October 17, 2014
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