Navigating Opportunities in a Changing Market

The potential for substantial capital growth and higher rental yields, fueled by unprecedented migration levels, is drawing an increasing number of investors into the real estate market, despite rising interest rates.

A combination of high migration rates and a shortage of housing is creating prime conditions for a significant increase in property values. While rising interest rates are a concern for many homebuyers, these market conditions are seen as favourable for investors who have the ability to borrow, especially as cautious buyers reduce market competition, providing an ideal time for tactical investments.

Data from the Australian Bureau of Statistics indicates a trend where property investors are leading the growth in lending, surpassing owner-occupiers since the start of the year. Investment credit has seen a 15.7% increase, in contrast to a 4.6% rise in borrowing by owner-occupiers in the same timeframe.

Tim Lawless, the research director at CoreLogic, points out the tenacity of investors in the market, focusing on their long-term growth prospects. He links their optimism to the expected ongoing housing supply constraints in the medium term.

Given the rental markets are anticipated to stay competitive, providing a steady stream of rental income, investors are looking forward to more favourable buying conditions in the coming year.

This sentiment is echoed in the Westpac–MI Consumer House Price Expectations Index, where a majority of consumers, over 70%, predict a continued rise in house prices in the next 12 months.

Arjun Paliwal, head of research at Investor Kit and a property investor himself, notes an increase in investor engagement driven by FOMO and the belief that interest rates may have reached their peak. His clients are keen to leverage the anticipated market upturn, especially those who missed out during the pandemic-induced property boom.

Warren Hogan, chief economic adviser at Judo Bank, observes signs of increased speculative behaviour among investors, describing it as an extreme form of FOMO. The ongoing shortage of housing coupled with high migration rates is fostering a sense of urgency, boosting investor confidence that, despite high property prices, a persistent shortage in residential properties is likely in the future.

Source: https://www.afr.com/property/residential/property-investor-fomo-returns-amid-high-migration-and-supply-shortage-20231127-p5emzw