Opportunistic and optimistic property investors pick-up slack from dwindling first-home buyer market

All signs in the latest housing finance data point to a more active property investment market.

The April ABS data shows that the value of home loans taken out by investors rose by 1.1% to five-year highs to $81.4 billion on a seasonally-adjusted basis, while the value of owner-occupier housing loans fell 0.9% to $14.6 billion.

The value of investment home loans to purchase established homes for rent or resale has been rising for nine straight months (since August 2012) and totalled just over $7 billion in April up from $6.82 billion in March.

A year ago the value of investment home loans to purchase established homes for rent or resale was $5.76 billion – an annual increase since then of 21.5%.

In contrast, the value of investment home loans to construct new dwellings for rent or resale has fallen for three straight months from $534 million in January to $381 million in April.

These figures suggest property investors may be buying up established homes that may have been marketed at first-home buyers, but who may have pulled back from the market due to no longer receiving the $7,000 first-home owner grant for established homes.

NSW ended its $7,000 first-home owner grant on October 1 and Queensland its first-home owner grant on September 12 – both states preferring to incentivise the purchase of new homes with $15,000 grants.

The most recent REIA housing affordability found that NSW first-home buyer in the March quarter totalled 2,647 - 57% lower than a year ago and a 40.6% fall in the March quarter alone.

In Queensland, home loans to first-home buyer decreased by 43.7% over the March quarter to 2,557 - the largest quarterly decline across the nation.

In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 14.3% in April 2013 from 14.2% in March 2013.

Westpac’s economics team commented that first-home buyers remained the stand out weak spot in the approvals data.

“We estimate loans to this segment were up 0.7% (seasonally adjusted) in April but are still down 10.8% annually and at very low levels by historical standards, particularly in NSW and Queensland," says Westpac.

CommSec chief economist Craig James attributed the rise in investment loans to "tight rental markets, state government grants for home builders, a relative lack of new homes being built and low interest rates are attracting investors,” said

Referring to the last NAB business confidence index, which improved modestly from minus 1.4 points to minus 0.7 points in May, James said Aussie businesses “could certainly take a leaf out of the book of housing investors”

“Investors see opportunities and are embracing them whereas businesses still complain about risks and hurdles,” he says.

James says first-home buyers are still reluctant to buy homes and prefer to rent instead.

“Fortunately second and subsequent home buyers are active in buying and building homes together with investors.

“The Reserve Bank will be happy that investors are diverting funds from cash-based investments to the housing market.

“On balance the Reserve Bank won’t be in a rush to cut rates again. The housing market is recovering while the lower Aussie dollar is assisting businesses,” he says.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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