By Robert Kirk
As we look across our latest household research, today we home in on property investors. We showed yesterday there is strong demand from both portfolio investors (those with multiple investment properties) and from solo investors (those with one or two properties). These segments are being motivated by the tax efficiency of the investment (36%), ongoing expectation of property capital growth (25%, compared with 28% a year ago), attractive overall returns compared with deposit accounts (18%) and low financing interest rates (14%). Overall, these drivers have been consistent through the last property boom cycle.
Drilling into solo investors, we see the same focus on tax efficiency (30%) and the lure of higher returns compared with bank deposits (35%). Indeed, as cash rates have fallen, we have see more switching from cash to property, one of the trends supporting the market.
There are a number of barriers to investors, apart from the obvious one of having already bought a property (43%), around 16% of investors are having difficulty getting the funding they need (16% compared with 4% a year ago) as lenders tighten their underwriting standards and income ratios. Fear of changes to regulation have receded from 21% a year back to 11% now. So essentially the main brake on property transactions is tighter standards. Property supply does not appear to be a problem.
We see a continued rise in SMSF investors adding property to their portfolio, with around 4% of funds holding residential property. Once again tax efficiency (31%) and appreciating capital values (25%) are the main drivers, supported by low financing rates (15%).
The proportion of property in a SMSF varies, with 20-40% being the most popular option.
Finally, it is worth noting that SMSF trustees are getting their investment property advice mainly from internet sites or forums (21%) or mortgage brokers (24%, compared with 21% a year ago). They also relying on their own knowledge (16%), Accountants (15%) or real estate agents (11%). Mortgage brokers appears to be more in favour now as a source of guidance.
So, in summary the investment sector is still strong, driven by the market fundamentals of expected capital growth and tax benefits, supported by ultra-low interest rates.
Tightening underwriting standards make it harder for some to get the finance they require. However, we conclude the property investment boom is still largely intact.
It is worth also reiterating our earlier observation that many prospective investors are being drawn to the eastern states, irrespective of where they live. These “honey pots” are drawing in the bulk of transactions.
Full article and graphs here
Disclaimer: Accessing and using any information from this site is on the condition you read and agree to the following. Before making any financial commitment to any property you should seek professional advice from a qualified and registered financial advisor. While every attempt is made to keep the information accurate and current, this site should be used to locate properties of interest to carry out further investigation as to the viability and suitability of the investment property to your personal situation. Indicative returns on investment are just that ‘indicative’ being based on information provided from third parties in regard to sale price and expected rent to be obtained. They are not deemed to be the final return once all other costs e.g legal fees, stamp duty, rental fees, utilities connections and the like associated with buying a new home are added in. Using links from this site to other web sites and the like means you are accessing information from sites we have no control over, we will not be held liable for any loss incurred from the use of information from this site and outbound linked sites. Management of Empower Housing Group and Empower Housing Group WA April 2014.