Sky high rents and looming rate cuts an opportunity for property investors
Property insiders say the coming months could be the best time this year for property investors to buy having been kept on the sidelines in recent time.
A combination of sky-high rental prices driven by a chronic shortage of properties and the prospect of interest rate cuts later in the year has created a window of opportunity for property investors over the coming months.
Investors have sat on the sidelines recently because of the direct impact from the Reserve Bank’s barrage of 13 interest rate hikes since May 2022, but real estate insiders say change is in the air for the cohort.
Rental prices increased by 13 per cent in 2023 as record immigration increased demand and elevated building costs created a severe shortage of new homes, which tipped the scales in favour of investors, but many stayed out of the market because mortgage costs rose.
McGrath chief executive John McGrath told Mansion that rental increases combined with the prospect of interest rates falling by the end of the year makes the next few months very tempting for investors who don’t need to borrow much.
“I wouldn’t be surprised if we see a return of the investor over the next six to 12 months in larger numbers,” McGrath says.
“A lot of baby boomers are able to invest with little or no borrowings for a lot of their investment opportunities. So they would see, prior to rate reductions, as a good window to jump into an investment while they’ve been down a few per cent,” he said.
Property values are tipped for further growth in 2024, but not at the near 10 per cent rate of increase seen in national values in 2023.
Economists at Jardens said that every 0.5 percentage points of cash rate or buffer cuts was worth 4-5 per cent in growth for house prices, which could have the impact of faster growth than anticipated.
PropTrack economist Angus Moore said housing affordability was at its worst level in at least three decades, with households affording the smallest share of homes on record because of interest rate rises.
“People can’t borrow as much as they used to be able to, which means they can’t spend as much and that will be a headwind for prices,” Moore said. “If we get rate cuts then that will be a tailwind for home prices as it will start to ease affordability a little bit by reducing mortgage costs.”
Moore said investors were impacted by the rapid pace in which interest rates rose, which in most cases outstripped the fast rise in rents over that period.
“The fact that we are seeing very tight rental market conditions and strong growth in rents is going to help rebuild rental yields.
“So that will be attractive for some investors. And it’s probably part of why we’ve seen a bit of a pick-up in investor activity,” he said.
McGrath expected that the upper end of the market would continue to be highly sought after and therefore lead to higher prices, while homes within a 10km radius of Brisbane, Sydney and Melbourne would also perform well.
“Brisbane has got a lot of good news happening over the next five to 10 years,” McGrath said.
“And I think that Brisbane has had some increase in values, but it still represents good value for money for a lot of people that are used to Sydney and Melbourne prices.”
| TOP 10 MOST SEARCHED SUBURBS NATIONALLY FOR 2023 (to buy) | |
| RANK | SUBURB |
| 1 | Brighton, Vic |
| 2 | Brunswick, Vic |
| 3 | Camberwell, Vic |
| 4 | Armadale, Vic |
| 5 | Berwick, Vic |
| 6 | Hawthorn, Vic |
| 7 | Melbourne, Vic |
| 8 | Richmond, Vic |
| 9 | Adelaide, SA |
| 10 | Essendon, Vic |
| TOP 10 FASTEST GROWING REGIONS NATIONALLY FOR 2023 (all dwellings) | |
| REGION | YEAR-ON-YEAR % CHANGE IN PRICE |
| Perth (southwest) | 18.4 per cent |
| Mandurah | 16.9 per cent |
| Perth (northwest) | 16.7 per cent |
| Perth (southeast) | 16.0 per cent |
| Adelaide (north) | 14.9 per cent |
| Perth (northeast) | 13.9 per cent |
| Ipswich | 13.0 per cent |
| Logan – Beaudesert | 12.9 per cent |
| Bunbury | 12.7 per cent |
| Brisbane (south) | 11.7 per cent |
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