Between 2013 and 2016, as property prices continued their strong march upwards and investment loans were relatively easy to come by, property investors were buying up big. But APRA restrictions on investment loans and a swift slowdown in property price growth in late 2017 saw investors leaving the market en masse.
Now, they are slowly on the way back. This isn’t surprising given borrowing costs are cheaper than ever before, and lenders appear to be loosening their vice-like grip on investor loans.
Investors are no doubt also buoyed by the apparent resilience of property prices to the recession. Price growth has varied considerably from one market to the next, however, so investors have been understandably picky about where they buy.
The graph below shows where investor enquiries have surged and declined over the past year.
Investor enquiry: change in 12 months to October 20201
What is driving investors?
There are a number of factors that appear to have been guiding investors since the beginning of the pandemic.
Growth in government sector jobs
Canberra – where the majority of employment is in the government sector – has seen a 34 per cent increase in investor activity. The city experienced the third highest price growth of capital cities in the year to June 2020 and is potentially viewed as more COVID-proof by investors.2
Resurgence of the mining sector
Growth in the mining sector since the start of the pandemic is translating into strong price growth in mining regions, which is attracting investor interest.
The resurgence of mining is in large part thanks to Chinese government stimulus. It also comes as other mineral-producing countries suffer severely from COVID-19 and are unable to produce at capacity. For example, Brazil was previously the second highest iron ore producer but is currently the second highest COVID-affected country. Iron ore prices have surged since the start of the pandemic and Australia has experienced increased demand for its iron ore supply.
Several other minerals have also been in strong demand this year, and values have been rising solidly since March. The price of gold has hit record highs this year and copper has also reached a two-and-a-half-year high.
As mining comes back onto the map, Darwin and Perth have seen renewed interest from property investors. Regional areas, too, are benefiting and attracting investor activity. Port Hedland, the largest global shipping hub for iron ore, currently has the second largest number of enquiries from investors. Townsville has seen some very strong price growth since the start of COVID-19, which is likely driven by the performance of nearby mines that produce gold and copper, among other things. Orange also ranks highly for investor enquiries, likely due to several highly performing mines nearby.
Migration and development of regional towns
Regional areas within commuting distance to capital cities (satellite cities) have experienced an increase in popularity over the last five years, with the biggest increases in population growth occurring in the following regional areas: Geelong, Bendigo, Ballarat and Latrobe-Gippsland (Victoria); Gold Coast and Sunshine Coast (Queensland); Southern Highlands, Shoalhaven, Hunter Valley and Illawarra (NSW); and Mandurah in WA. However, employment has generally been problematic in these areas, with many people still spending long hours commuting to a nearby capital.
COVID-19 has changed that. As working from home becomes second nature to many, the long daily commutes are increasingly a thing of the past and we are seeing demand in these areas increase accordingly. At the same time, state governments have been investing in infrastructure and better transport links, and a number of regional areas have become self-sufficient economies, offering more local work options.
It is perhaps the ability to work from home that has also spurred an increase in popularity and demand in areas that are not near capital cities at all, such as Bangalow, Richmond-Tweed and Coffs Harbour-Grafton in northern NSW; Warrnambool in Victoria; and Margaret River and Cable Beach in WA.
As these migration trends have gathered pace since the start of the pandemic, investors are understandably keen to capitalise on the price growth and rental demand that will likely follow. Queensland’s Gold Coast and Sunshine Coast are experiencing the highest levels of investor enquiry, with Noosa Heads up by 19 per cent in 2020 and Southport, Surfers Paradise and Mooloolaba up by 8 per cent, 7 per cent and 5 per cent respectively. Capital cities, aside from Darwin, Perth, Adelaide and Canberra are experiencing the lowest levels of investor interest.
The graph below shows the areas with the highest investor interest in each state.
Highest enquiry from investors since COVID-19 (April to September 2020)
For those with a stable income, now could be a good time to consider whether an investment property is right for you. Record-low interest rates can make leveraging to invest in property extremely appealing. Low rates considerably reduce your largest expense (loan repayments), so you can potentially keep more of your rental income and capital gains, and turn a bigger profit overall. When deciding where to invest, while it’s essential to do your research so you understand the current trends, ensure you also keep property fundamentals in mind.
SOURCES: 1https://www.realestate.com.au/insights/chief-economist-update-investors-slowly-return-but-not-in-our-biggest-cities, 2https://www.allhomes.com.au/news/cbr-canberra-house-price-growth-outpaces-wage-growth-data-shows-986780
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.