Why investors are flooding back to real estate

Investors are returning to the Aussie property market in numbers not seen in years. Here’s why.

Investors are back in full force in the property market, with the latest lending data showing 37.1 per cent of new home loans by value went to investors in May. That’s the highest percentage in seven years.

One factor encouraging investors back into property is good buying opportunities across the lower price brackets. This segment of the market did not experience as much capital growth as the upper price brackets in 2023. But rents kept rising everywhere. This made yields more attractive and has encouraged more mum-and-dad investors back into the market this year.

New data from CoreLogic shows the national median weekly rent hit a new record high of $634 per week in June. That’s an 8.2 per cent annual increase and equivalent to an extra $48 per week.

Investors are back in a big way. Picture: NCA NewsWire/ Gaye Gerard

Another factor bringing investors back was the expectation of interest rate cuts later this year. But things have changed a bit during the course of 2024. We may even see a rate rise to jolt inflation back onto a more sustainable downward path before we see the first rate cut.

However, many countries around the world have started cutting rates, and Australia will follow eventually. And we know that historically, property values tend to go up when rates go down.

So, it is smart for investors who are ready to buy to go ahead and do so now.

Rents are very strong, and you’ll be in a good position to benefit from any uplift in values that occurs as interest rates eventually come down a bit over the next few years. There’s been a lot of political and media discussion lately about the tax breaks available to property investors.

I think this has led to a perception that Australian landlords are mostly a wealthy bunch, who own multiple properties, and they’ve bought them mainly to take advantage of negative gearing so they pay less tax on their big incomes.

Some people do invest for these reasons, but they do not represent the typical Aussie landlord. Last month the Australian Bureau of Statistics released the tax data for the 2022 financial year.

The data gives us an insight into who the average landlord is. Here are some key stats:

• In FY22, there were 2,268,161 rental property owners, up 1 per cent from 2,245,539 in FY21

• Of those 2,268,161 landlords, 71 per cent own just one investment property

• Almost one in two landlords who own one rental home earn less than $100,000 per year

• Plenty of landlords work in everyday industries. For example, just under 120,000 landlords are teachers or childcare workers. Another 120,000 are receptionists or administrators. About 95,000 are nurses, midwives or emergency service workers

The primary goal of the average Aussie investor is not to get tax breaks. It’s to build wealth through an asset class they understand to ensure a financially secure retirement. If you’re thinking of buying an investment property, you are among many other ordinary Australians who have made the same choice and reaped the benefits over the long term. There’s an old saying in real estate that goes:

• Q: When is the best time to buy property?

• A: 20 years ago.

• Q: When is the next best time to buy property?

• A: Today.

This still holds true.

* John McGrath is the founder, Managing Director and Chief Executive Officer of McGrath Estate Agents