The real estate market has always been a lucrative option for private investors. Real estate investors have several reasons to stick to this industry from rental income to high appreciations in base value.
Regardless of the size – small, medium, and large investors are equally active in the industry.
Last year’s recession, however, did create a short ripple in this trend. A lot many investors backed out on their investments or were forced to sell short their assets.
As a result, investors pulled out their money, interest rates reduced, Mortgage-backed securities also dipped. But, as the pandemic is receding, investors are returning to the real estate market.
Key Takeaways:
- Investors are returning to the real estate market.
- Banks have cut down investor rates to attract more landlords.
- Regulators may help cool down the housing market, but not very soon.
So, will it create a problem for first time home buyers?
Let’s see.
The Return of Investors
Analysts forecast that there is some serious money to be made this year in the real estate industry.
Prices for properties could go as high as 20% in some markets by the end of 2022. It means first-time homebuyers are going to have a tough time in months to come.
Since most of the growth in the housing market is driven by owner-occupiers, there might be a short window for urgent buyers.
In 2017, regulator APRA intervened and tightened the lending requirements. As a result, Mortgage rates went soaring high.
After the investor credit growth dipped on a month-to-month basis due to the pandemic last year, the market is expected to reach the same level as back in 2017.
Moreover, the Australian Bureau of Statistics reported a 12% monthly increase in investor loans in March 2021. The report also mentioned a 3% drop in first home buyer lending commitments.
So, probably, this might be a good time to invest in the real estate market, with fewer risks involved.
Great Investment Opportunities Lie Ahead
Last year’s pandemic has led to record low-interest rates and a volatile stock market.
Consider this, there are no investors or buyers to put their money in real estate. As a result, there is a dip in demand whereas, the supply is in surplus.
Property investors are expecting substantial capital gains with so many promising factors at play in their favor.
Market insiders opine that access to leverage is one of the most significant benefits that property investments can promise. Contrary to this, real estate investments are more lenient. Investing in shares is far riskier and requires a lot of research.
For example, investors can take out a loan to buy a property and yet control the more considerable asset. Meaning, there are profitable gains to be reaped if the investments are made just a little carefully.
Here’s a report from abc.net.au – Rental yields for houses in Newcastle are an average of 3.5 per cent.
A few years ago, this return might not have been considered good. But, thanks to the record low-interest rates, this perception has changed.
Moreover, investors are now moving towards regional markets. And experts believe this also has to do with the after-effects of the pandemic.
Most end-users are either moving away from metro cities or moving back to their native places. As a result, the real estate market in big cities is reaping uncertain returns. And probably, this is also the reason why investors are now looking forward to regional markets.
Banks Are Cutting Rates for Landlords
The most remarkable factor creating an investor frenzy in the property market is backed by the banks.
On 28th May this year, the National Australia Bank (NAB) announced a decrease in its variable principle and interest rates. The cut was brought down by 30 base points to 2.79% for property investors.
To your surprise, it is the lowest ever variable rate of a loan in its category announced by NAB.
The four other banks are also competing for a slice of the pie in the investor market. The lowest interest rate among all is 1.89% with Northern Island Credit Union.
A spokesperson from a private lending firm says the record low investor rates are creeping up in longer-term fixed investments. However, the same is not valid for short-term rates. In short, it is facilitating the growth in investment lending.
It seems as if the investors are competing at the expense of first-time homebuyers. Since most of the first-time buyers are low-income earners, they can’t afford to compete with the large investors are auctions. More so, they might also not be able to pay for the resale value of properties.
What the Future Holds?
Despite the risks for home buyers, the property market in Australia is scorching at the moment. With all the investors piling up on regional markets, the demand is fueling up hot.
More so, the APRA and the Reserve Bank are showing no urgency to cool down the property market.
The only thing that’s comforting is the involvement of the regulators, as they might help keep the lending standards in control.
Mortgage regulators might step in and cap investors to control the boom. But, that might still not be possible until 2022.
Till then, the property prices are expected to grow only, making it unaffordable for first home buyers.
In addition to this, the future impacts of the pandemic are still unclear. Although the vaccination drives are being carried out in full swing, investors and homebuyers may still change their moods.
Who knows, the soaring prices might become stagnant in the coming months. Or maybe, come to a halt all of a sudden.
Until a proper cure, both healthwise and financial, for Covid-19 isn’t found, the uncertainties are expected to creep in.
This uncertainty is the only comfort that first home buyers or rebuyers are going to receive. Or at least, better said, until the bad times pass away.
Moreover, the millennial population shift from property investments to renting houses may also be crucial in the coming months.
Market experts suggest waiting out the time and watching for the trends is the only viable option at the moment.
