Investment could keep dropping

by Rebecca Pike13 Sep 2018

Investment may continue to trend down due to tighter lending criteria, mortgage rate premiums for investors, low rental yields and soft prospects.

This is the analysis from Tim Lawless, head of research at CoreLogic, who also suggests potential changes in negative gearing and capital gains tax concessions after the next election could affect investor sentiment.

The latest figures from the Australian Bureau of Statistics (ABS) showed that while owner occupier loans were up from the previous year, investor loans had dropped.

Really driving home how the investment market has dropped are the CoreLogic and ABS figures that show the proportion of investors in all new finance commitments.

In March 2015 investors reached a record high of 55% of overall mortgage demand. As of July 2018 this figure had dropped to 41%.

Lawless said on average over the last decade investors made up around 45% of demand, but the figures had been tracking below that since November last year.

He added, “Over a longer period, say the last 30 years, investment levels have averaged much lower, averaging just 37% of the overall value of housing finance; a reminder that the past decade is a high benchmark for investment activity.”

Not everywhere in Australia has seen a drop in investors. Every state and territory across Australia apart from Tasmania saw a decline. Between July 2017 and July 2018 Tasmania saw an increase of 16.3%.

Lawless said, “Despite the trend towards less investment, the states where investment has been the most concentrated, NSW and Vic, continue to show the highest share of investment lending based on value. 

“Investors still comprise almost 49% of lending in NSW and almost 41% in Vic, well above the long term average.  

“Considering the short to medium term prospects for capital gains in these states is relatively low and rental yields remain close to the record lows, the concentration of investment activity in these states doesn’t make much sense.

“In all likelihood, we will continue to see investment activity trending lower, especially in NSW and Vic due to mortgage rate premiums for investors, tighter lending criteria, low rental yields and soft prospects for capital gains.  Additionally, with a federal election around the corner, potential changes to negative gearing and capital gains tax concessions could be weighing on investor sentiment.”