Expert says property investors often overlook this capital city
The latest data from the Australian Bureau of Statistics (ABS) reveals that property investors are making a comeback in the real estate market, constituting 34% of mortgage demand based on the value of new mortgage commitments. This figure aligns with the long-term average, indicating a renewed interest in property investment.
A closer look at the state-level data shows that New South Wales is currently the focal point for investors, with 38% of the value of new mortgage lending in the state being attributed to investment purposes, according to an analysis by CoreLogic research director Tim Lawless (pictured above).
On the other hand, Tasmania and Western Australia are witnessing relatively lower investor activity, with only 24.5% and 28% of mortgage commitments, respectively, directed towards investment ventures.
According to Lawless, what stands out in the statistics is the case of WA – particularly Perth, which boasts one of the highest gross rental yields among all the state capitals at 4.9%. Additionally, the entry point to the property market is more accessible in Perth, as its home values record the lowest median among the state capitals. Interestingly, despite the recent rate-hiking cycle, Perth's housing prices have displayed resilience and are the only ones to have reached a new record high.
“To me, the fundamentals suggest it is a location that presents one of the best investment opportunities around the country,” Lawless wrote in his analysis. “And yet we're not seeing investors very active in that marketplace.
“Investors are more active in NSW where rental yields are the lowest of any state and in Sydney the lowest of any capital city,” Lawless wrote. “The buy-in price is significantly higher, and arguably the prospects for capital gains could be less significant when you consider the affordability challenges that remain apparent across the Sydney marketplace”.
Lawless said that lacklustre investment activity in Perth may be attributed to herd mentality, where more investors are flowing into the Sydney or NSW market, even though rental yields there are the lowest among all states and capital cities, and the buy-in price is considerably higher.
Another factor that could be influencing the subdued investor interest in Perth is the memory of significant volatility in housing values during and after the mining boom. Between 2004 and 2014, Perth's home values surged, but they experienced a 20% decline between 2014 and 2019 due to weak economic conditions.
Read next: Perth housing market sees record year
Nevertheless, the Perth market still stands as an attractive option for investors, as does the housing market in southeast Queensland. Both regions boast strong fundamentals, including higher rental yields, lower buy-in prices, and rapid population growth driven by both overseas and interstate migration. Unlike NSW and Victoria, where population growth is mainly fueled by overseas migration, which is initially aligned with rental demand, Western Australia and Queensland's population growth better aligns with purchasing demand, Lawless wrote.
“If you're looking for capital gain, well, sure Sydney and Melbourne do have a stronger history of capital gains, but they're also relatively expensive which could dampen capital gain opportunities going forward.” Lawless wrote. “If you're looking for the best of both worlds, again, Perth and southeast Queensland have a higher yield profile but also, arguably, stronger prospects for capital gains, considering a healthy mix of housing demand from a blend of interstate and overseas migration, along with more affordable housing prices relative to the largest capitals.”
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