With first-home buyers and upgraders dominating the market, the quiet pick up in investor activity is going largely unnoticed.
The most recent home lending data from the Australian Bureau of Statistics (ABS) found that in October 2020 there was $5.3 billion in new lending to investors. While that represented the smallest share of total new lending to investors on record at 23.3%, the value of lending to investors has increased for five consecutive months and is up 29.5% over that period.
Investors are returning to the market, they just haven’t ramped up to the magnitude of first-home buyers and upgraders, so the recovery that we are seeing remains somewhat under the radar.
The volume of email enquiries from investors to agents for established properties on realestate.com.au was 1.1% higher in October 2020 than it was in October 2019.
What is probably much more interesting is where the investors are enquiring, although it is important to note that it’s not a requirement for investors to enquire with an agent so the data represents a relatively small cohort of investors. Nevertheless, it is valuable to look at these trends.
Queensland beachside properties are popular
Queensland’s Gold Coast was the most popular region for investors in both 2019 and 2020, however the volume of enquiry has fallen by 5.5% over the past year.
The Sunshine Coast has seen the second highest volume of enquiry from investors this year with the volume up 10.5% on a year ago. The NSW Central Coast region has seen investor enquiry lift by 58.0% over the past year shifting it from the 10th most enquired region for investors a year ago to third spot in 2020.
Melbourne – Inner continues to see a relatively high number of investor enquiries and is ranked fourth this year, however the volume of enquiry has fallen by 30.2% relative to a year ago.
Interest is fading in capital cities
Nine of the 10 regions that have recorded the largest falls in investor enquiry over the past year are in capital city areas. Sydney regions accounted for seven of the 10 regions with the largest falls in investor enquiry over the past year.
Many of these regions still get some of the highest levels of investor enquiry nationally but the pandemic and subsequent recession has led to large falls in enquiry – unsurprising given that the fall away in overseas migration has greatly impacted rental demand and most of that migration flows into Sydney and Melbourne.
These declines have led to some big changes in popularity with Sydney – Eastern Suburbs falling from 8th most popular investor market to 25th spot over the year. Sydney – North Sydney and Hornsby fell from 7th to 12th place, Sydney – City and Inner South fell from 5th to 10th and Sydney – Inner South West fell from 14th to 36th most popular market.
The top 10 regions for annual declines in investor enquiry accounted for 12.6% of all investor email enquiry in October 2020.
Regional and outer areas are investor hotspots
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All of the 10 regions that have seen the largest year-on-year increases in enquiry from investors are regional areas or areas that sit on the outskirts of the capital cities. They also tend to still have a low volume of enquiry although it has lifted significantly over the past year.
There are two exceptions: Hunter Valley excluding Newcastle jumped from the 28th most popular region for investors a year ago to the 8th most popular this year, while Central Coast moved from 10th spot to 3rd nationally.
The top 10 regions with the largest year-on-year increase in investor enquiry accounted for 10.6% of all investor enquiry.
The data shows that the growth in investor enquiry has moved from inner city markets and is shifting to outer suburbs and regional areas. This is a logical response to the pandemic impact on inner city areas, particularly on apartment markets.
COVID is hampering investors, but not forever
A lack of international students due to closed international borders is having an impact on rental demand and subsequently investors, but the impact is largely contained to unit markets in Sydney and Melbourne. We may see a further impact early in 2021 as many leases expire over the first quarter of each year.
Elsewhere, rental rates are generally increasing showing that the impact of closed borders is very geographically specific.
Along with the enquiry data we can see that investors are still active, however they have shifted their focus away from traditional capital city markets to outer suburbs and regional areas.
There is good reason for this. In a world where official interest rates are virtually at zero, investors are seeking returns. In normal times a gross rental yield of 4% may not be particularly attractive, but nowadays those returns plus some potential price growth are becoming increasingly attractive.
Given this, the recent uptick we have seen in investor demand is likely to continue in 2021. While investor activity may remain significantly lower than owner-occupiers and compete with first-home buyers, we shouldn’t write them off as a potential market force over the coming year.