Investor activity slows as property market loses traction

Melbourne followed suit with a 1 per cent fall in values, closely trailed by the ACT with a 0.6 per cent decrease.

While growth remained positive, the report found that mid-sized capitals recorded a sharp slowdown, with Brisbane and Perth’s values climbing by a moderate 0.3 per cent and 0.7 per cent, respectively.

Similarly, Adelaide’s values held steady with no growth over the month.

Cotality research director Tim Lawless said that foundational factors, such as affordability and serviceability challenges, had played a pivotal role in slowing the property market.

“There definitely isn’t just one thing causing the downturn. Part of it is cyclical, but then there is also the more structural factors like the taxation changes we saw announced in the federal budget,” Lawless told SPI.

“I think it really reflects the sensitivities of the market and fragility, particularly in Melbourne.”

He said the three rate rises to start the year, as well as inflation, fuel costs and the latest federal budget, had added “fuel to the fire”.

While it was too early to see the direct impact of the changes, Lawless said that market confidence was beginning to waver.

“Anecdotally, I am hearing from the market that investors have pulled back quite sharply, but also other segments of the market seem to have become less active as well.”

“This is fairly common during a time in which prices are falling, where a lot of buyers simply don’t want to catch a falling knife and buy their next home, and suddenly it’s worth less than what they paid for it.”

As value continued to decline, Lawless said first-home buyers who purchased using the government’s deposit scheme were the most vulnerable and already operating on a thin margin.

Despite the risk of moving into negative equity as values decline, he said that there was no need for home owners to panic.

“There’s not much of a buffer between what they borrowed for the home and what it is worth,” Lawless said.

“So with downward pressure on prices, we will probably see more instances of negative equity, but that in itself I don’t think is that big unless the owner needs to sell their property.”

He said it would require a significant, unexpected rise in interest rates before first home buyers found themselves in a problematic position.

“Even if some first-time buyers do experience negative equity, given they tend to hold their properties for upwards of five years, the cyclical factors in the market tend to heal that wound as it eventually turns around.”

With Cotality’s data estimating that only 0.8 per cent of suburbs had cash-flow-positive opportunities, Lawless said that investors would likely become more cautious when acquiring new assets.

“I think for a lot of investors, there is going to be a wait-and-see approach. Negative gearing was a pretty important element of investing in the industry and property market.”

He said that while a large portion of investors who targeted established homes would pull away from the market, some may pivot to new builds to maintain the tax incentives.

“The majority of investors will see the new build market as risky, given the resale opportunities can be quite shallow because they can’t sell to other investors who will get the same tax treatment.”

“There’s also the price premium you pay, and the risk that there isn’t a scarcity of supply in the newly built market. For those reasons, I think investors would be cautious about buying into the new market.”

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• property value
• Cotality

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