Investors expect property prices to rise: Martin North's DFA report

Investors expect property prices to rise: Martin North's DFA report
Investors expect property prices to rise: Martin North's DFA report

The tighter rules on investment property notwithstanding, investors — portfolio or SMSFs — continue to look for opportunities, as the latest report by consulting firm Digital Finance Analytics shows.

Putting this into context, the Australian residential property market is currently valued at over $5.86 trillion, with values doubling in the past 10 years.

According to the RBA, as at January 2016, total housing loans were a record $1.53 trillion.

The median number of properties held by households that are portfolio investors is eight, with the group comprising of 191,000 households, the DFA’s latest biannual report titled The Property Imperative found. 

According to the surveys in the report, most households expect house prices to rise in the next 12 months (70%), while 64% said they will transact in the next 12 months. Many will borrow more to facilitate the transaction (90%), and 52% will use a mortgage broker. Significantly, for about 23% of portfolio investors, managing their property investments has in effect become their full time job. 

Among solo investors, about 992,000 households only hold investment property, 2.5% of which are held within superannuation, shows the report.  Households in this segment will often own one or two properties, but do not consider they are building an investment portfolio

Around 68% of households expect prices to rise in the next 12 months, 38% expect to transact within the next year, 53% will need to borrow more, and 37% will consider using a mortgage broker. 

There are a number of barriers to investment, which the surveys identified. Many investors had already bought, so were not in the market (34%). More than 26% of potential investors were concerned by possibly adverse change to regulation – negative gearing or capital gains and 9% specifically referred to risks in the May budget. Some (12%) said they felt property prices were now too high, said the survey.

"The RBA continues to highlight their concerns about potential excesses in the housing market. In addition, Australian Prudential Regulation Authority (APRA) has been tightening regulation of the banks, in terms of supervision of lending standards, the imposition of speed limits on investment lending and has raised capital requirements for some bank," says Martin North, the founder of DFA.

"The latest RBA minutes indicates their view is these regulatory changes are slowing investment lending somewhat, though we observe that demand remains, and in absolute terms, borrowing interest rates are low."

The survey also noted the interest in investing in residential property via self managed superannuation funds (SMSFs), which can only invest if the property meets certain criteria. 

Overall, the survey showed around 3.75% of households holding residential property in SMSF, and a further 3.5% were actively considering it. 

Of these, 33% were motivated by the tax efficient nature of the investment, while others were attracted by the prospect of appreciating prices (24%), the attractive finance offers available (12%), the potential for leverage (15%) and the prospect of better returns than from bank deposits (12%). 

The proportion of SMSF in property was on average 34%. 

According to the fund-level performance from APRA to December 2015, and DFA’s own research, superannuation is big business, with total assets worth more than $2 trillion (compared with the $5.5 trillion in residential property in Australia), an increase of 6.1 % from last year. 

APRA reports that Self-Managed Superannuation funds held assets were $594.6 billion at December 2015, up from $578.9 billion in September 2015.

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Residential Market Investment Property

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