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Finance remains as biggest barrier for aspiring property investors

Finance remains as biggest barrier for aspiring property investors

by Bianca Dabu | February 13, 2020 | 1 minute read

While market sentiment has improved significantly, finance remained a barrier to entry for a large proportion of aspiring home buyers, according to a recent survey.

Finance
February 13, 2020

PerthPerth, TAS Perth, WA-based property investment consultancy Momentum Wealth found that, of more than 400 respondents, 38 per cent highlighted lack of equity or borrowing issues as factors preventing them from entering the market in the shorter term.

Momentum Wealth’s finance team leader Caylum Merrick said: “We’ve seen some big changes in Australia’s lending market in recent years, first with APRA regulations and the royal banking commission.”

“While lending restrictions have now been somewhat loosened with interest rate cuts and the relaxation of serviceability buffers, investors are recognising that the lending market isn’t cut and dry.”

According to Mr Merrick, the growing complexities in Australia’s lending environment could be behind the growing popularity of mortgage brokers across the country.

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Of the respondents, 68 per cent said that they would engage a mortgage broker to secure their next investment loan over other lending options, with only 19 per cent indicated they would approach their bank directly.

Apart from securing a loan, a lot of buyers, especially those in more complex finance situations, are also seeking additional guidance and support in navigating the changing market and strengthening their financial position.

Strong appetite for commercial property

Despite the challenges in finances, most investors are still eager to grow their portfolio, carrying a strong appetite for diversification.

According to Momentum Wealth, 47 per cent of respondents highlighted a blend of capital growth and cash flow as their preferred investment strategy.

The number of respondents who would consider investing in commercial property was also high, with just over three-quarters who hadn’t been exposed to the sector, indicating they would consider doing so either through direct or syndicated investment.

Mair Property Fund managing director David Ellwood said investors are recognising the benefits of commercial property as a great source of cash flow due to the decreasing interest rate.

“With the low interest rate environment pushing returns on interest-bearing investments such as government bonds and term deposits below 2 per cent, yield-focused investors are looking towards alternative income-generating options, and with potential yields of 5.5-7.5 per cent, commercial property is presenting an attractive alternative,” he said.

Due to the growing interest for commercial properties, which typically have higher entry cost, experts also notice a growing interest in commercial property funds.

Momentum Wealth’s survey results showed that 63 per cent of investors would consider pooling money together in a syndicate or trust to access high-net-worth investments such as commercial assets, up by 6 per cent from last year’s survey.

According to Mr Ellwood: “While investors are seeing the potential benefits that commercial property can offer in terms of portfolio diversification and exposure to income-focused assets, investing in these assets directly isn’t always a viable option due to the high entry cost and market knowledge required, which is where pooled investments can present a more feasible alternative.”

“These investments can allow buyers to gain exposure to high-quality assets at a lower cost and with the additional benefit of a professional management team, but buyers still need to weigh up each investment carefully as the risk can vary depending on the investment type and management team involved.”

Overall, the results of Momentum Wealth’s annual survey revealed an increasingly bullish sentiment among Australian property investors.

“There are exciting times ahead for property investors in 2020 with a number of markets showing strengthening growth prospects, but careful decision-making and the right advice will be key for those looking to take advantage of market opportunities,” he said.

Finance remains as biggest barrier for aspiring property investors
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