Home Info Centre 10 insights into the investment property market
10 insights into the investment property market
Insurance insights

10 insights into the investment property market

01 Oct 2020 10 mins read

A guide to keep landlords and agents updated about what is happening in the investment property market…

1. The rental market

In September, capital city asking rents declined 0.6% for houses to $529 p/w and 0.7% for units to $413 p/w, according to SQM Research. Sydney, Melbourne and Brisbane all recorded decreases in weekly rents for both houses and units, while Perth and Darwin recorded increases for both. In Adelaide and Hobart house rents rose, while unit rents declined, the opposite was true in Canberra. Across the capitals: Canberra ($623 p/w houses / $474 p/w units), Sydney ($620 / $455), Darwin ($536 / $367), Brisbane ($464 / $376), Adelaide ($411 / $316), Hobart ($448 / $369), Melbourne ($517 / $393) and Perth ($470 / $357).

National vacancy rates declined 0.1% in August to 2.0%, according to SQM Research. A total of 69,971 residential properties were vacant Australia-wide over the month. All capitals, except Melbourne (+0.3% to 3.4%), recorded decreases in vacancy rates. Falls of 0.2% were recorded in Perth (to 1.1%) and Canberra (to 0.8%), while Sydney (to 3.5%) and Brisbane (to 2.1%) saw falls of 0.1%. Rates held steady in Adelaide (at 0.9%) and Hobart (0.7%).  Darwin recorded the largest decline at -0.3% to 1.1%.

According to CoreLogic’s Hedonic Home Value Index, the average gross rental yield for capital city houses in August was 3.3% and 3.9% for units, while the combined regional house yield was 4.9% and 5.3% for units – bringing the national gross yield to 3.7% for houses and 4.1% for units. Gross rental yields across the capitals: Sydney (2.7% houses / 3.4% units), Melbourne (2.9% / 3.9%), Brisbane (4.2% / 5.2%), Adelaide (4.3% / 5.4%), Perth (4.3% / 5.3%), Hobart (4.7% / 4.8%), Darwin (5.4% / 6.8%) and Canberra (4.4% / 5.7%).

Rental affordability improved in the June quarter, according to REIA’s Housing Affordability Report. The proportion of income required to meet rent payments decreased 0.4% to 23.3%, making it the best rental affordability result since 2007. Rental affordability remained stable in NSW at 27.5%. Affordability improved 0.5% in Victoria to 22.5%, 0.5% in Queensland to 21.5%, 1.0% in SA to 21.5%, 0.5% in WA to 16.1%, 2.0% in Tasmania to 28.5%, and 0.4% in the NT to 20.2%. The ACT was the only jurisdiction where affordability declined over the quarter, increasing 1.1% to 22.3%.

Figures from Digital Finance Analytics revealed rental stress was 41.1% (or 1.78 million households) in August. Tasmania had the highest number of renters in stress (53.7%), followed by Victoria (43.8%), the ACT (41.3%), WA (40.4%), NSW (40.0%), SA (39.7%), Queensland (37.9%) and the NT (29.5%).

REIA’s Real Estate Market Facts quarterly report for June showed the median rent for three-bedroom houses decreased in all capital cities except for Canberra (marginal increase) and Sydney (stable). The decrease in median rents for 3-bedroom houses, over the June quarter, was 1.6%. The median rent for two-bedroom other dwellings decreased in all capital cities except Darwin (+1.7%). The largest decline was -8.7% in Melbourne. The weighted average vacancy rate for the eight capital cities decreased to 3.0% during the June quarter.

2. Housing trends

According to CoreLogic’s Hedonic Home Value Index, housing values declined 0.4% in August to a median value of $552,689. Across the capital cities, Canberra (+0.5%), Darwin (+1.0%) and Hobart (+0.1%) posted a rise in dwelling values over the month, while Melbourne (-1.2%), Sydney (-0.5%) and Brisbane (-0.1%) recorded declines. Adelaide and Perth recorded no change.

National residential property listings decreased 6.3% in August to 293,053, according to SQM Research data. All capital cities experienced decreases in property listings over the month. The research also found capital city average asking prices decreased 0.3% for both houses (to $980,500) and units (to $564,300).

Residential property prices for the eight capitals fell 1.8% in the June quarter 2020, according to ABS figures. The only capital to record an increase was Canberra (+0.8%), while Melbourne (-2.3%) and Sydney (-2.2%) led the falls. Declines were also recorded in Darwin (-1.4%), Brisbane (-0.9%), Adelaide (-0.8%), Perth (-0.7%) and Hobart (-0.4%).

According to HIA’s Housing Affordability Index for the June quarter 2020, national property prices were at their most affordable since 1999. The Affordability Index for capital cities improved 5.6% per cent to 83.4, meaning buyers now require less than 1.2 average incomes to service a mortgage on a median-priced dwelling in Australia’s capitals.

Following predictions for major housing price declines in May, ANZ’s forecast has improved. The bank’s economists now predict a national price drop of 10%. Prices in Melbourne are expected to see the biggest fall at -15%, followed by Sydney at -13%. The smaller capitals are set to experience smaller declines: Hobart -9%, Brisbane -6%, Perth -4%, Adelaide -3% and Canberra -2%.

The National Housing Finance and Investment Corporation Trends & Insights report showed that the First Home Loan Deposit Scheme (FHLDS) had supported one in eight first home buyers between March and June. Of the 10,000 FHLDS participants, almost 70% purchased a detached house (at a median price of $385,000, with 54.1% purchased in the major capitals), around 25% purchased an apartment (at a median price of $475,000, with 82.6% purchased in the major capitals) and 5% purchased a townhouse. In total, 62.3% of FHLDS participants purchased a home in a major capital, while 37.7% purchased a property in a regional location.

Australia has ranked 19th (up for 56th in 2019) in the world for house price growth for the year to June 2020, according to the Knight Frank Global House Price Index Q2 2020. It showed Australia’s house prices grew 6.1% over the year to 30 June 2020. Across the 56 countries and territories tracked in the index, the average annual price change was 4.7%.

3. Building

The number of building approvals nationwide rose 12.0% in July to 13,840 (seasonally adjusted), according to the ABS. Approvals for private sector dwellings excluding houses rose 22.7%, while approvals for private sector houses increased 8.5%. The value of residential building approved rose 9.5%.

According to data from the Urbis Apartment Essentials Report, new apartment project launches continued to decline in Q2 2020. Just 23 new projects launched nationally in Q2, in comparison to 60 projects launched for the corresponding period in 2019.

4. Investment market

According to statistics from the ABS, the value of new loan commitments for investor housing rose 3.5% (seasonally adjusted) to $4.58bn in July.

In August, 25.4% of all investors were stressed (i.e. income from rent is not sufficient to recover the costs of owning and letting their properties), according to figures from Digital Finance Analytics. Of the 826,568 stressed investors, 125,645 were severely stressed. NSW had the highest number of stressed investors (33.8%), followed by the ACT (33.1%), Victoria (24.9%), WA (23.4%, Queensland (23.3%), SA (16.2%), Tasmania (15.1%) and the NT (13.8%).

Over the June 2020 quarter, the share of investors in overall housing finance dropped to 25.4%, which is below the decade average of 36.3%. The total lending for investors during the quarter declined by 12.6%, according to CoreLogic’s Quarterly Economic and Property Review.

5. Finance matters

According to data released by APRA, $167 billion of housing loans were deferred in July, accounting for 9% of the $1.8 trillion in total in outstanding home loans.

During August, home loan pre-approvals hit their highest volume since 2014, according to mortgage broker Aussie. Western Australian borrowers had the highest growth (165%) in pre-approvals across January to August, followed by SA (141%), Tasmania (140%), Queensland (114%), NSW (55%), Victoria (54%) and the ACT (44%).

6. Latest research

According to Anglicare’s mid-year Rental Affordability Snapshot, just 1% (808 rentals) are affordable for people on the JobSeeker Payment, even with the temporary doubling of the rate. With the reduction of the rate from 25 September, only 168 rentals (0.2%) will be affordable and if JobSeeker returns to its old rate, just 13 rentals across the entire country would be affordable. Anglicare’s data also revealed rental affordability has dropped to 0.8% for aged pensioners and 0.3% for DSP recipients.

Rent.com’s August COVID-19, Renting and You survey revealed 40% of renters were ‘managing ok’, with 24% successfully negotiating a rent reduction. This was an improvement on March’s results, where 26% indicated they were managing ok and 17% had negotiated a rent reduction.

Analysis by CoreLogic has revealed the 56% decline in population growth (from around 350,000 in 2019 to 154,000 over the year ending June 2021) will disrupt housing demand. Most of the forecast decline in population growth is due to stalled net overseas migration, which is expected to drop from around 232,000 net migrants in the 2018/19 financial year to just 31,000 in 2020/21. As migrants tend to rent (research from the Australian Treasury showed approximately 85% of recent skilled migrants were renters and around 80% of those arriving on humanitarian grounds rented), demand for rentals in the capital cities will be impacted. 

Research by the National Housing Finance and Investment Corporation has suggested demand for housing in Australia could decline by between 129,000 and 232,000 dwellings over the next three years. The expected decline is due to the downturn in overseas migration.

RiskWise Property Research has identified the top 10 ‘danger zones’ in Australia for unit investment.  The riskiest areas in the country in terms of oversupply, based “not only on the supply itself but also on low demand for rental apartments, in relation to that supply” are Victoria’s Melbourne (3000) and Docklands (3008), NSW’s Mascot (2020), Rouse Hill (2155), Parramatta (2150) and Gosford (2250), the NT’s Darwin (800), Queensland’s West End (4101) and Surfers Paradise (4217) and SA’s Adelaide (5000).

7. Technology insight

CoreLogic and Suncorp have teamed up to launch a renovation cost calculator. The calculator provides estimates of renovation costs according to the room, renovation type and suburb where the renovations are taking place.

Amazon has launched Alexa for Residential, allowing property managers and landlords to deploy and manage Alexa-enabled devices. The launch was in response to a survey by the US National Apartment Association that found 84% of renters want an apartment with smart home amenities and 61% said they would pay a monthly fee for a voice assistant.

8. COVID-19 impacts

From 30 September 2020, Queensland transitions back to normal residential tenancy arrangements. The six-month eviction moratorium, and measures implemented to support it, cease to apply after 29 September 2020, while other protections will continue to apply until 31 December 2020, including provisions allowing tenants experiencing domestic and family violence to end their tenancies quickly.

The Tasmanian State Government has extended the emergency period to 1 December 2020, meaning all protections in place for residential tenants affected by COVID-19 will continue. In addition, the Rent Relief Fund has been extended with a second round of payments (up to $2,000) and a new Landlord Support Fund (up to $2,000) has been introduced. Tenants in rent arrears at the end of the emergency period will be able to apply to the Residential Tenancy Commission for a repayment plan.

On 4 September, the Victorian State Government announced the moratorium on evictions has been extended to 28 March 2021. The ban on rent increases has also been extended to March.

The ACT Government announced the eviction moratorium has been extended until 31 January 2021. Other measures have also been extended. In addition, from 13 September 2020, all ACT tenants on fixed-term and periodic tenancies will be able to pay just two weeks’ rent in advance to help manage their cost-of-living pressures.

On 7 September, the SA State Government announced the eviction freeze for residential lease agreements had been extended to 28 March 2021. The government also announced a new land tax relief scheme.

On 10 September, the WA State Government announced the emergency period had been extended to 28 March 2021. During the emergency period, evictions and rent increases are prohibited. The government also launched the Consumer Protection Landlord Hotline, a phone service answering questions and offering specialist assistance to residential landlords with COVID-19 coronavirus pandemic-related tenancy issues. The Residential Rent Relief Grant Scheme will also continue through the extended emergency period, as will the Residential Tenancies Mandatory Conciliation Service. 

On 23 September, the NSW State Government announced the evictions moratorium had been extended for the further six months. The measures will remain in place until 26 March 2021.

9. On the radar

According to the 2020 PIPA Annual Investor Sentiment Survey, 44% of investors are looking to purchase in the next 6-12 months. The survey also found 67% of investors believe now is a good time to invest in residential property and 77% said that any concerns about potential falling house prices wouldn’t cause them to put their investment plans on hold. Some 71% of investors also indicated that the pandemic has made it less likely they will sell a property over the next year. 

Using its RP Data Professional platform, CoreLogic found 31.4% of real estate professionals surveyed had seen an increase in requests for rent reductions, 25.7% had seen an increase in rental delinquencies, 25.0% had noticed an increase in payment postponement requests and 8.8 per cent had noted an increase in evictions.

The ACCC has issued a warning about rental and accommodation scams. With more than $300k lost to fraudulent activities so far this year, the watchdog said scammers were targeting people seeking new rental accommodation by offering fake rental properties and using tactics related to the COIVD-19 pandemic such as offering reduced rents and using government restrictions to trick people into transferring money without inspecting the property.

Westpac has revised its near-term housing price forecasts. The bank is now predicting a 5% price correction through to late 2021 (previously 10%), then a 15% surge over the next two years.

CoreLogic data has indicated the onset of COVID-19 may be creating a two-speed rental market, with inner-city rents declining faster than those in the outer suburbs. The data confirms that there is a positive correlation between changes in rent values and distance to the CBD, meaning that the closer a region is to the CBD, the more likely it is that rent values have fallen.

Legal corner: A REA from WA has been fined $18k and ordered to pay costs of $684.15 after it failed to lodge 19 tenancy bonds on time. The agency pleaded guilty to breaching the RTA by failing to lodge the bonds from 16 properties with the Bond Administrator within 14 days of receipt. The REA had previously been fined for failing to lodge eight bonds (amounting to $12,400) on time in March 2018.

10. Government incentives and actions

The Victorian Government has announced landlords in the state will not have to pay land tax on vacant residential properties this year. The government said the Vacant Property Land Tax waiver would allow property owners to save a total of $6m.

The deadline for NSW landlords who reduced their tenant’s rent due to COVID-19 to apply for land tax relief has been extended to 31 December 2020.

In accordance with new legislation, COVID-19 Safety Plans are mandatory for all open homes and auctions across NSW. Agents who do not have an active COVID-19 Safety Plan, as well as the paperwork (digital or hardcopy) ready for display to Fair Trading officials, will face a fine of up to $5k.

The Greens have introduced the ‘Renting with Pets’ Bill into the SA Parliament. The proposed legislation, based on laws passed in the ACT, the NT and Victoria, would make it easier for tenants to rent with pets by making having pets automatically allowed, except in certain circumstances.

On 25 September, the Australian Government revealed that it was loosening responsible lending laws, in an effort to increase the flow of credit and promote economic recovery.

Main photo by Deeva Sood on Unsplash

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 954 374 if you have any questions. 

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