Investment Lending – Page 7 – Digital Finance Analytics (DFA) Blog

The Unhappy State Of Investment Property

In the ABS data yesterday there was useful information on the state by state situation with regard to investment property lending. So today we look at the latest data, and it is quite shocking. The chart below shows the 6 month rolling average value of lending for property investment flows across the major states. It is the sum of lending for dwelling construction, and borrowing for established homes by individuals, and others. This is not seasonally adjusted, so it is original data. The most striking observation is the breakout in NSW, and to a lesser extend VIC. There is much more modest growth in the other states. No wonder then the RBA has been starting to warn.

But if we look by percentage splits, its is even more stark. In 2008, 32% of investment lending was in NSW, the most recent data puts it at 45%. In VIC, in 2008, it was 26%, today its still 26%. Compare this with QLD, where in 2008, it accounted for 23% of investment lending, whereas today it has dropped to 14.5%; WA also dropped a little. Combined, VIC and NSW comprise 71% of all investment lending – talk about concentration risks!

There is a strong correlation with buoyant investment activity and house prices of course, and this raises a significant question for the regulators, if macroprudential is brought in, can it be done in a way to target the investment sector without causing unintended consequences, and if investment is slowed in NSW, what does that say about the prospects for house prices in coming months. It is indeed an unhappy state of play.

Property Investors Get A Second Wind – Latest DFA Survey

The latest DFA Survey results indicate that momentum in the property investor segment is set for an upswing, as we move into the spring season. When we last reported on our survey results, there was a dip in intentions, quite strongly linked to budget uncertainly. This has largely evaporate now other than continuing concerns about potential benefit cuts. Today we summarise some of the recent results which points in this direction.

First we look at prospective purchasing intentions across our segments. We see first time buyers still languishing, whereas solo investors, portfolio investors and uptraders are showing an increase in momentum compared with results from June.

House price expectations are pretty similar to earlier in the year, more are thinking prices are set to continue to rise, than fall.

Sole investors are being motivated by the prospect of appreciating property values, and better returns than deposits. They also continue to be attracted by tax breaks associated with investment purchases.

Superannuation investors are still in the market attracted by the tax efficient nature of this investment class, and backed by expectations of rising prices. They are also responding to lower deposit rates.

Looking that those SMSF funds with property, we see that most have 30-40% of their super aligned to property, but there is a wide spread. Absolute numbers of SMSF’s with property remain quite low, but it is growing.

So what is driving the resurgence of investors? We see that that overhand from the budget has mostly gone now, and funding is readily available. We also see that those who already bought, are coming back for more.

Finally, when we look at the budget factors in particular, we see that the high income levy still has an impact, whereas fears of changes to negative gearing has fallen, along with fears of changes to superannuation rules. We note though that concerns about reductions in benefits remains.So, putting that all together, we think that investment lending will continue to outstrip owner occupied lending, and reach new records in coming months. We will incorporate this latest data into our models, and plan to publish an updated edition of the Property Imperative later in the year.

Investors Still Good To Go – Tax Breaks Ahoy!

Today we look at property investor trends in our household surveys series. We have been following the strong growth in investment lending, so was interested to see what property investors were thinking. Their appetite to invest appears to be slowing as we showed in our earlier post. Looking at those who are thinking about transacting, we find they are still attracted by the potential appreciation of property values, and the tax efficient nature of these investments. Low finance rates are a little less important, whilst getting returns better than deposits was up.

Turning to the SMSF property investment area, the drivers are quite similar, although the potential for tax efficient investments is significant. They are also attracted by the leverage they can obtain.

We have seen some interesting shifts relating to where potential SMSF property investors are getting their advice. The role of real estate agents has diminished in recent months (perhaps in reaction to the strong warnings from ASIC?) whilst mortgage brokers and internet forums and other sites have become more significant. We also see increasing personal knowledge guiding the trustees.

Our last data point relates to the proportion of superannuation which is aligned to residential or commercial property. The most significant move was in the 10-20% range.