Property Investor Lending Increases in Favor of Landlords
A landlord’s market has contributed to a significant increase in property investor lending over the past year, rising by more than a third.
According to data from the Australian Bureau of Statistics, investor lending rose by 5.4% in July to $11.7 billion (US$7.88 billion), nearing the record high of $11.8 billion (US$7.95 billion) seen in January 2022.
In contrast, lending for owner-occupied properties only increased by 2.9% to $18.9 billion (US$12.73 billion).
Mish Tan, the head of finance statistics at the bureau, explained that the growth in investor activity was primarily due to an increase in loan approvals rather than escalating house prices.
She mentioned, “Investors have experienced the most significant growth in new loans over the past year, with values jumping over a third from $8.6 billion (US$5.8 billion) in July 2023 to $11.7 billion.”
Oxford Economics Australia senior economist Maree Kilroy noted that the tight rental market and higher gross unit rental yields were fueling demand from investors.
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Good news for renters is that the rapid increase in rents might be slowing down.
CoreLogic data shows that rents have plateaued in the last two months after surging 39% between August 2020 and June 2024.
There are signs of cooling in the home price growth as well, as more listings come onto the market in certain cities and affordability challenges surface in others.
Nevertheless, mid-sized capitals continue to see higher average loan sizes due to their strong performance.
In July, South Australia reached a new record high for owner-occupier average loan size at $561,027 (US$377,935), though rising prices are impacting first-home-buyer demand.
Kilroy predicts a softer 5% increase in capital city home prices over the next year, supported by tax cuts and real wage growth.
However, with interest rates expected to remain unchanged until the second quarter of 2025, affordability will still be a significant constraint.
The slow progress on inflation has delayed the possibility of interest rate cuts, with the Reserve Bank of Australia cautioning against premature decisions.
Chief economist David Robertson from Bendigo Bank believes that rate cuts are unlikely until 2025, as other central banks around the world begin easing monetary policy.
Despite challenges like energy rebates, the Reserve Bank of Australia is waiting for more evidence that core inflation is under control before considering rate adjustments.
