Rising interest rates strain rental market

Less investor activity means rents will go up, says expert

Rising interest rates strain rental market



Investor activity in Australia’s property market has declined significantly over the past year as higher interest rates limit the financing options available.

Lending indicators from the Australian Bureau of Statistics revealed that the number of new investment loan commitments in December 2022 dropped 28% compared to the year prior.

The ABS data also showed that the number of new investor loans had been steadily increasing from May 2020 until June 2022, which is when the current investment downturn started.

Additionally, investor finance made up 33.6% of new mortgage lending nationally in December, falling below the decade average of 34.6%.

Michael Pell (pictured above), managing director of property investment advisory Propell, commented on the ABS findings and said this sharp decrease would drive rents up further over the coming months.

“The volume of new investors has fallen off a cliff because of the rising interest rate environment preventing many from accessing finance at a time when our rental markets are critically undersupplied,” Pell said.

With investment activity dropping below the decade average, Pell also said it was unlikely that renters would see relief in the near future.

“There is no question that the rental market is very tough for renters, which is why we need more investors purchasing property to help alleviate the current critical undersupply of rental properties,” he said.

CoreLogic previously reported that the annual growth in Australian rent values was at a new record high of 10.2% in the 12 months to December.

“When you consider that rents have risen by double digits over the past year, as well as softer market conditions, it is actually ideal timing for would-be property investors to enter the market,” Pell said.

First or second-time investors with budgets in the $600,000 to $800,000 range are well positioned to secure properties with “capital growth potential and solid yields,” Pell said further, especially in southeast Queensland and “strategic locations” in NSW and Victoria.

“In fact, it is those prospective investors, who perhaps already own a home, who are the best placed to take advantage of the current market dynamics, whilst also being unlikely to face the lending headwinds that existing investors may be experiencing at present,” he said.

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