Investors' housing splurge

木偶先生

Author: Tim Colebatch
Date: February 19, 2008
Publication:  The Age (subscribe)

Rental investors have swarmed back into Victoria's housing market, borrowing almost 30% more funds last year to snap up what they saw as bargains, and pushing aside first home buyers as prices soared.

Australian Bureau of Statistics figures just released show that rental investors borrowed $15.6 billion in 2007 to buy existing homes in Victoria: 29.4% more than a year earlier, and 10 times the amount they borrowed in 1995.

With investors last year offered a one-off opportunity to put $1 million into superannuation tax-free, experts including then treasurer Peter Costello and Reserve Bank governor Glenn Stevens predicted investors would move money out of housing into superannuation. Yet in the end, they found enough money for both.

Any shift out of housing was overwhelmed by the shift into it, as investors sought to capitalise on forecasts of a rent surge due to housing construction falling well behind the growth in Melbourne's population.

It was a similar story in Brisbane and Adelaide, and to some extent, even in Sydney. After three years in which investment in rental housing fell or remained flat, except in Western Australia, last year it reignited — and taking housing prices with it.

At national level, lending to rental investors buying existing homes shot up 18% last year to a record $75.4 billion. Yet borrowing by investors to build new housing shrank for the second year in a row. Only one in every 12 dollars lent to investors was used to build something.

The bureau estimates that housing prices rose 18% in Melbourne and 12% nationally over the year to December. The Real Estate Institute of Victoria reported a 23% rise in Melbourne's median price.

The victims were first home buyers. In 2005 and 2006, as investors retreated and prices stabilised, young buyers had come back into the market. The number of properties financed by first home buyers shot up 45% in just two years, from 90,029 in 2004 to 130,357 in 2006. But last year that momentum went flat.

The number of first home buyers financed rose just 4% to 135,252. The amount they received rose 8% to $31.6 billion, less than 40% of the amount lent to investors. Until the mid-90s, lending to the two groups was roughly similar.

Victoria was only slightly better. The number of loans to first home buyers rose just 6% to 34,807, while the amount lent climbed 10% to $7.8 billion, just under half the amount lent to investors. But Victoria does have slightly more than its share of first home buyers, and a lower share of property investors.

At national level, borrowing by owner-occupiers in general to buy existing real estate rose by 14% to $112 billion, the third year in a row of rapid growth. But in the previous two years, first home buyers accounted for roughly half the growth in lending. Last year, it came overwhelmingly from people who had sold one home to buy another.

Demand in Melbourne has remained strong so far this year, although Saturday's auctions showed the first signs of faltering. Faced with the first big day of the year, with 596 properties under the hammer, the clearance rate dropped to 73%, its lowest level since 2006.

Real Estate Institute chief executive Enzo Raimondo cautioned that it was too early to conclude that the market was losing steam. But next weekend the number of properties for auction will double again to 1120, which really will test buyers' appetites.

While building approvals in Victoria rose 11% year on year in the six months to December, it will take time before they start to reduce the housing shortage that has built up — even if they all go ahead. Standard variable mortgage rates have risen since August from just over 8% to roughly 9%, and the Reserve Bank is expected to raise rates at least once and possibly twice in the next three months. If both interest rates go ahead, it would increase the cost of servicing a typical $250,000 loan by roughly $250 a month.

Investor activity peaked in the June quarter of 2007, but even in the second half of the year, borrowing by investors was still 20% higher than a year earlier. It was the first time since 2003 that investors have increased their share of the market.