Investors’ Ardour for Property Waning with Falling Yields
Investors’ love affair with Sydney’s property market could be over, with experts anticipating a slowdown in property speculation.
But less competition from investors may be good news for first-home buyers.
”All the pointers are there showing that the Sydney investor market has overshot its fundamentals,” said the senior economist at Australian Property Monitors, Andrew Wilson.
A fighting chance: Less competition may spell good news for first-time buyers. Photo: Rob Homer
”Yields in Sydney are plummeting, which is no surprise given house price rises, but flat-lining house rents aren’t helping the situation.”
RP Data senior research analyst Cameron Kusher agreed, and said investors thinking of getting into the market had missed the boat.
”Whether you are chasing capital growth or rental return, neither look particularly strong at the moment, certainly not as strong as 12 to 18 months ago,” he said. ”Given that, I do think that we will see a pull-back in investor activity this year.”
There are plenty of signs that investor conditions in Sydney may be deteriorating. APM’s latest rental report shows that while the median weekly rents for units increased by a modest 1 per cent in the December quarter, house rents stagnated.
Dr Wilson said that as a result investors might turn away from property to other asset classes.
”The investor buzz won’t be about residential property this year, it will be back to equity,” he said. ”I think we are going to have a better year for the stockmarket this year. It will follow the American market.”
And while some investors will choose to sell, others may have to.
The December Real Estate Institute of NSW Vacancy Rate Survey showed the number of properties for rent rose 0.2 per cent to 1.8 per cent. Although this was largely a seasonal increase, Dr Wilson flagged concerns about investors’ ability to find tenants.
”If you can’t get a tenant you have no cash flow,” he said. Without cash flow ”those that have gone short or have highly geared investments will have the sell”.
Mr Kusher said a rise in unemployment also could start a sell-off. ”The forecast data shows that the unemployment rate should start to climb,” he said. ”If people lose their jobs and need some capital, the investment property will be the first thing to go.”
But while the market may be closing the door on investors, it could be opening a window for first-home buyers.
Latest figures from the Australian Bureau of Statistics show that in November 1286 properties in NSW went to first-home buyers – the highest number in a year.
While first-timer numbers are well below peak levels, Dr Wilson expects the number to increase as investors back away.
The senior manager of residential residential property at BIS Shrapnel, Angie Zigomanis, is also anticipating a small comeback. ”We do expect to see an increase but from a low base,” he said.
Though there will be less competition from investors, Mr Zigomanis said the end of the stamp duty exemption and the grant for established property meant first-home buyers ”now have a situation where they have to generate a bigger deposit to compensate for the lack of incentive”.
Mr Kusher agreed affordability would remain a major hurdle.
”What is preventing a big recovery in first-home buyers is simply the cost,” he said.