Australia's investor market is in transformation mode, with investors reassessing how and where they deploy capital.
A combination of proposed tax reforms and tighter regulatory scrutiny is weighing on sentiment. Plans to abolish the blanket capital gains tax (CGT) discount and limit negative gearing to newly-built properties, alongside updated Australian Taxation Office (ATO) rules preventing holiday homeowners from claiming deductions on properties that are not genuinely income-producing rentals, have raised questions about the outlook for investor demand.
"It definitely has changed how people think about capital and whether they're going to sell before they look at buying something else," Paul Katranis, founder and director of Adelaide-based brokerage SA Wealth, told Australian Broker.
In May, Westpac forecasted that investor activity could fall by as much as 34% in the near-term if the proposed tax changes became a reality, with the remaining demand shifting to different segments of the market.
That shift appears to already be underway. On Wednesday, the major bank confirmed to Australian Broker that it had a 20% decline in investor loan applications over the past three weeks.
The pullback reflects more than just tax uncertainty. Elevated interest rates have eroded borrowing capacity, inflation continues to drive up costs, Australia’s housing shortage persists, and global economic volatility is adding another layer of caution for investors.
“When you put the three together, it’s quite a lot of change,” Carolyn McCann, chief executive of consumer banking at Westpac, said in comments to the AFR. “Customers and the community could be a bit concerned about the changing signals.”
But the executive added: "I would call it a mood of concern rather than crisis."
On the ground, brokers say investors are far from retreating. Instead, they are adapting to a rapidly evolving market.
"Sophisticated investors will always be investing," said Suvidh Arora, co-founder and co-chief executive officer of Melbourne-based 42 Property.
He added that investors are "absolutely" switching gears, changing up their strategies to navigate the new landscape.
"There's a bit more detail around what kind of strategy they want to employ, whether they want to get into commercial real estate, or deploy different structures in order to get the best tax outcome for themselves," Arora explained.
"We're also seeing a slight shift towards people starting to think about their self-managed super funds (SMSF) as an investment vehicle," he continued. "The mom and pop investors, obviously, are a bit scared right now because [the tax changes are] a massive impact for them. Because they are the ones who were relying on this annual cash flow to ease the burden on their pockets and build that generational wealth. So, in the shorter-term, obviously, it impacts people's cash flow."
Investor uncertainty is filtering through to brokers, who say clients are closely watching the policy debate unfold.
"There's a lot of commentary around the budget. Obviously, investors are paying attention; investors have concerns," said Tracey Kearey, mortgage and finance broker at Brisbane-based Mortgage Advice Bureau (MAB) Australia. "Maybe investors are thinking, if there's no benefit to buying an investment property, why would I do it?
"And I've had a few more commercial inquiries for commercial properties," she continued. "And I've been doing a lot more in SMSFs. I've seen a big rise in that."
It's not just SMSFs and commercial investments that have seen increased demand. Outsized residential mortgage-backed securities (RMBS) continue to attract investor interest, including Firstmac's recent $2 billion deal, a transaction that closed after the recent budget changes were proposed.
"Buyers out there are much more aware around price points," Katranis said. "It doesn't mean that they're retreating from the market. They're just pricing things down based on risk out there in the market."
For brokers, this means they will have to adjust as well.
Katranis emphasized that brokers need to be "multifaceted as a business.
"If you're a broker with one particular skill set only, obviously, it is a risk," he explained. "Then if policies do change, it impacts the type of market that you're looking after. Then, as a business, you need to pivot; you need to be diversified in terms of the type of revenue stream and the type of services you provide your clients.
"What happens if you are that one-trick pony that just looks after first-time homebuyers, and that market — because of policy changes — changes? It impacts your business," Katranis continued. "If that's all you do, then you're stuffed; you might suffer. And not just leave money on the table, but you actually may not get revenue through at all. But if you've got a spread of different types of transactions, then that's amazing."
