Continuing the update of the latest household survey results, today we look at the investment housing sector. Having seen some months of reduced investment lending activity, the most recent ABS data showed a resurgence of investment lending. We think this will continue. As we reported yesterday, we recorded a spike in the proportion of households who were considering an investment property. Looking across all investors, they say it is the tax effective nature of the investment which drives the demand, coupled with appreciating property values. These together provides better returns than savings accounts or shares. The low costs of finance also helps.
There are a number of barriers which might stop investors from transacting. Last time the prospect of potential budget changes registered, whereas this time the proportion of investor households who cited this as a reason to avoid transacting dissipated. We see a similar trend relating to changes in regulation. On the other hand, there was a rise in those unable to get funding – from below 5% last year to more than 15% this year, reflecting tighter underwriting requirement. So not everyone can get what they want. Results of the election are in the “Other” category, and hardly registered. Investors seem to assume no change in government. High home prices appear to be less of a barrier now.
Looking at solo investors – those who only have one or two investment properties, the prospect of better returns than other investment vehicles is the strongest driver, and the recent cash rate cut has underscored this even more. We see evidence of older investors turning to property instead of bank term deposits (and we see a switch from term deposits to call savings accounts as part of the picture), because of the very low interest rates on offer.
Households who are portfolio investors maintain a basket of investment properties. There are 193,000 households in this group (up by 2,000 from the previous survey). The median number of properties held by these households is eight. Some have more than 20!
In addition, we continue to see a rise in those investing via a SMSF (we have yet to detect an impact on the $1.6m cap which was announced in the budget, which of course is only applicable to those in draw down mode, and even then is still tax efficient).
Households looking to invest via a SMSF seems to be getting information from a mortgage broker (24%) or internet sources (22%). Financial Planners (7%) lag behind Accountants (14%) and Real Estate Agents (11%).
Finally, we still find that those who do investment via SMSF do not tend to put all their super savings into property.
Next time we will look at the latest data relating to first time buyers.
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