Back in favour: Investors return to property following 2023 exodus

Investors are being lured back into the property market on expectations values will continue to rise, but industry groups want certainty that the goal posts won’t keep moving.

In recent years, many property investors have opted to cash in and take advantage of strong capital gains, with home values up more than 50% in the five years.

National home prices are up 5.3% over the past year, PropTrack data shows, adding around $47,900 to the value of the median home – and consumers expect prices will continue to rise over the next 12 months.

The latest Home Price Index shows national home prices rose 0.5% in August to a new record high. This marks eight straight months of growth as the housing market gains momentum following a series of interest rate cuts this year.

These cuts have boosted borrowing capacities, improving sentiment and drawing buyers back to the market, according to REA Group senior economist, Eleanor Creagh.

“As a result, the housing upswing, once narrowly led by a handful of cities, is broadening and closing the gap between outperformers and laggards, ushering in a more uniform phase of price recovery across the capital cities,” Ms Creagh said.

Demand has re-accelerated in Sydney and Melbourne, marking a turnaround from the slower conditions observed in late 2024. Melbourne is closing in on its 2022 peak, with relative affordability and strong population growth restoring its appeal, she said.

The option to cash in coincides with the spring auction season, which has kicked off over the last weekend. On the weekend, auction clearance rates across the state hovered around 70% across the country.

Investor loans rise

Painting the picture is data from the Bureau of Statistics, which show that the number of new investor loan commitments for dwellings rose 3.5% in the last quarter, while the value rose 1.4%.

The figures show that there were 49,065 new investment loans approved this year in the June quarter, a 3.5% rise (1,656 more loans) compared to the previous quarter. The average loan size rose by $1,103 to $674,259.

The number of new loans rose in most states and territories, the largest increase was in the Northern Territory, which rose 21.1% and Western Australia which rose 1.4%.

“The 3.5% quarterly growth in the number of investment loans follows two consecutive quarterly falls. While annual growth slowed to 0.8% from 27.0% in the June quarter 2024, the number of new loans remained historically high,” Dr Mish Tan, head of finance statistics at ABS said.

Investors were shunning the market a few short years ago. Australian Taxation Office data from the 2022/23 investor market shows the steepest annual decline in individual property investors in over 25 years had reversed decades of steady growth.

At the time, ATO statistics for 2022/23 revealed the total number of individual property investors fell by more than 7,000 compared to the previous year – a reversal that comes after decades of consistent growth in investor participation. The data excludes the global financial crisis and the Covid period, which had an exceptional impact on the market, before bouncing back to some degree.

But REA Group’s executive manager of economics Angus Moore notes a lot has happened in the property market since 2023, when the most recent data ATO data is available up to.

“Remember, 2022/23 is a while ago, and since then, we’ve seen a big pick up in investors buying in.”

“That period of time coincides with when the Reserve Bank of Australia was rapidly raising rates, and saw a pullback in housing market activity broadly, including from investors,” he said. 

The share of taxpayers reporting gross rent on their tax return has been in decline for about a decade.

“This has been the best measure that market analysts have of how many people invest in rentals. While the decline in 2022/23 was sharper, it’s not a new trend,” Moore said.

“The share of new loans going to investors is around its highest in decades in Queensland, WA and SA, and its highest since 2017 in NSW.

“Victoria is the only state where we haven’t seen that pick-up, and investor activity remains more subdued there.”

What’s driving investors to sell

Meanwhile, The Property Investment Professionals of Australia (PIPA) has come out swinging, calling for the government to put an end to the uncertainty in the investor market impacting investment sentiment. It wants the government to reaffirm support for property investors and maintain longstanding tax policies that encourage investment.

PIPA says that government interference in the rental market is the number one concern for current and prospective investors, while mounting costs, regulatory uncertainty and fears of tax reform are causing a structural shift in the investment market.

“All investors want is clarity and consistency – they can’t plan for the future when the rules keep changing,” PIPA chairman Lachlan Vidler said.

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