Newcastle property investors having over-reliance on capital growth: HTW

The latest HTW report notes that Newcastle residential yields are in the 3.5% to 4.5% range - which they describe as exceedingly low.

The Herron Todd White report suggested investors were in such instances having an over-reliance on capital growth to keep their investment equation in balance.

"This is also likely to mean that unless rental rates start increasing again, values may have to correct themselves," it tipped.

The valuation firm Herron Todd White noted the recent rate rises by the banks did not come without warning.

"APRA has been making noises about the capital raising of lenders for some time" the HTW November report states.

"The general consensus appears to be that several markets are overheated and a correction could be a major economic issue for Australia.

"The recent move to increase the interest rate for investors has had the effect of subduing the ardour from some investors to portfolio build, likely the prime goal of the rise.

"While the actual increase itself is minor, the psychological effect is something more substantial.

"We have had a long sustained period of interest rate decreases."

The HTW report highlights that the last increase by the RBA dates back to November 2010 and since that time investors have seen capital values rise, rental rates rise and portfolio values increase with little to no effort.

"To suddenly see an interest rate increase is a fundamental shift in mindset that may rock a few and place on the back foot those investors who have leveraged their portfolios too high."

The report goes on to suggest that discussions with agents indicate that investor enquiry in the Hunter is waning slowly.

"Previously agents could sell investment stock to a list on a database without the irritating hard work that open homes and general listing duties generally require.

"Instead of setting a price on the off chance that someone takes the hook, prices now require a little bit of prep work prior to unleashing them on the market.

"One might say that purchasers are at that point where they are exercising a small, but increasing amount of power to be choosy. Are the days of the seller’s market over?

"We aren’t that keen to declare that statement fact yet, but fledgling signs are there, as if a tiny seedling is emerging in the first few days of spring from the damp, steaming ground.

"What could stop it? Why, your retired dad doing you a favour and attacking your weeds with Roundup TM of course.

"Nothing like dad maintaining a garden.

"Rental rates in the Hunter region have been stagnant for a period of time now, unless you are in an area impacted by mines where the rates have been falling for a number of years now", says the HTW November review.

"Rental rates are one side of the yield/value/income triangle."