Data released earlier this week said that a record-high proportion of investors are now seeking returns that are difficult to attain outside of the property market.
The Australian Bureau of Statistics (ABS) recorded that lending by Australian authorised deposit-taking institutions (ADIs) for investment purposes hit a new high in September at $11.9 billion in finance commitments to investors over the month.
The ABS also showed that investors commanded 41.1 per cent of all housing finance commitments and 50.3 per cent when refinances are taken away – both of these percentages represent record highs.
With regard to housing finance loans to investors against standard variable mortgage rates, RP Data research analyst Cameron Kusher said that “both the current and previous spike in investor lending coincided with a period of low mortgage rates.”
"Of course low mortgage rates occur in concert with low interest rates, which mean cash savings get low returns, as a result investors push into other markets such as residential housing,” Mr Kusher said.
Mr Kusher said that investors in housing generally have two options for achieving a return from their investment – capital growth or rental return.
"While combined capital city home values increased by 8.9 per cent over the 12 months to October, total returns have been recorded at a higher 13.3 per cent,” Mr Kusher said.
Sydney and Melbourne lead Australia’s capital cities both in terms of total returns and investor activity.
RP Data reports that the biggest downturn for capital city home values in recent times came in May 2012. Since then, the increase in home values has been led by the New South Wales and Victoria capital cities (and to a lesser degree, Darwin).
“Total returns have also been strongest across these three cities but the returns elsewhere are somewhat stronger than if we just focus on capital growth,” Mr Kusher said.
Mr Kusher identified Hobart as a city that makes the case for remembering to consider an area’s rental returns.
“Between May 2012 and October 2014, Hobart home values are -0.1 per cent lower,” Mr Kusher said.
“However, strong rental yields see the total returns recorded at a much healthier looking
13.4 per cent.”