Property investment: why 2023 could be the year to pounce

After the doom and gloom of 2022, there are positive signs for property investors this year – but patience may be required.

Real estate lost its lustre in 2022 as surging interest rates and sinking house prices combined to drive investors out the door.

Property values nationally have been falling at a record pace and the drop since 2022’s peak is more than 8 per cent, although figures vary widely between capital cities.

Reserve Bank rate rises have increased the repayments on many home loans by more than $10,000 a year, and people who previously escaped the rate-rise carnage by fixing their loans face a mortgage cliff in 2023.

Some economists predict three more RBA rate rises, starting on February 7, although others believe it has finished raising rates. Investment lending fell more than a quarter over 2022.

Amid this gloom are pockets of positivity, and the long-term wisdom of investment professionals who recommend buying in when things are bad rather than good.

That’s when the bargains appear, whether it’s in property, shares or other assets.

While it may be wise to wait to see what the RBA does in February, these four reasons suggest investing in real estate may be a good move this year.

1 THE RENT SURGE

Rental listings fell more than 25 per cent in 2022 while rents rose 10 per cent across capital cities, according to PropTrack data. Many investors have enjoyed much bigger rent rises as tenants battled for scarce accommodation, and SQM Research says asking rents have surged again in January and are up 18 per cent year-on-year.

While this rental rise doesn’t offset the 40 per cent rise in variable interest rates over the past year, it does mean investment properties are paying stronger income yields to investors. And when interest rates eventually fall, the rents won’t follow them lower.

Demand for housing should climb strongly when interest rates stabilise then fall.

2 RATE RISE IMPACT

Eight straight Reserve Bank rate rises in 2022 dragged down property prices, and the RBA has forecast total falls near 11 per cent.

If it keeps lifting interest rates, things could get worse, because fewer people can afford to buy real estate when repayment costs are so high. The good news for investors is that rates are at or near their peak.

Prices will rebound eventually, once the current shock rates subsides and demand drives more people toward real estate.

3 MORTGAGE CLIFF DIVING

Up to 40 per cent of borrowers fixed their home loan rates near 2 per cent a couple of years ago, and they are in for a nasty shock in 2023 as most of those loans revert to variable rates well above 5 per cent.

This means their $10,000 repayment jump will come in one painful strike, and its impact on the property market is unlikely to be good. Investors should be watching these developments closely.

4 POPULATION GROWTH

Immigration is back on after two years of Covid, and everyone moving to Australia needs somewhere to live.

We are not building enough houses to meet existing demand, and an extra 200,000-plus humans arriving each year will only exacerbate the supply-demand shortfall.

It’s all good news for property owners and investors, as long as they have the patience to ride out a potential 2023 storm.