Australian Property Pulse - Newsletter #14

Welcome to this week's edition of Australian Property Pulse

This week, home buyers and investors are taking on larger loans with smaller deposits, reflecting a growing eagerness to enter the property market, with owner-occupier loans at higher loan-to-valuation ratios (LVRs) than ever before. ?

Despite concerns, more property investors are entering the market than exiting, with new investor loans consistently outpacing the number of investor listings. ?

The industrial property sector is showing signs of a slowdown, with rising vacancy rates and stalled rental growth in key Australian cities. ?

Distressed sales are becoming a notable trend, with distressed listings rising sharply in NSW and Victoria, surpassing pre-pandemic levels. ?

The housing market is facing unprecedented challenges, with high interest rates and rising property prices making home ownership more difficult than ever before.

Rising Borrowing Trends: Home Buyers and Investors Take on Larger Loans with Smaller Deposits

In recent months, both home buyers and investors have been taking on larger loans with smaller deposits, reflecting a growing eagerness to enter the property market. Latest research shows that 9.2% of new loans for owner-occupiers in the June quarter had a loan-to-valuation ratio (LVR) of 90% or higher, up from 6.1% a year ago. Investors are also increasing their borrowing, with 3.22% of loans now at high LVRs, compared to 2.3% last year.

This shift is largely driven by the federal government’s First Home Guarantee Scheme, which allows eligible buyers to secure a home with as little as a 5% deposit, avoiding costly lenders mortgage insurance. Instead, Housing Australia guarantees up to 15% of the home’s cost.

Data from CoreLogic and the Australian Prudential Regulation Authority (APRA) highlights a surge in high LVR loans, signaling a willingness to take on risk in a competitive property market.

Investor Confidence Resilient Amid Challenges: More Loans Than Listings in the Property Market

Recent data reveals that property investors are making bold moves, with more entering the market than exiting. While some investors are selling, new investor loans consistently outpace the number of investor listings. In October, investor listings rose to 13,000, still below their November 2021 peak, while new loans reached 18,400 during the same period.

This trend continues in Victoria, despite government policies that have raised concerns, including increased land taxes and stronger renter protections. Interestingly, the number of investors selling in Victoria only exceeded new loans once in the past year.

Although there was a slight increase in listings following the announcement of expanded land taxes, investor confidence remains strong. Many investors, especially those with lower debt, are stepping in to fill the gaps left by others.

This data highlights the long-term appeal of property investment and the need for strategic insight in a dynamic market.

Industrial Property Sector Faces Slowdown, But Investment Demand Remains Strong

The industrial property sector is showing signs of a slowdown, with rising vacancy rates and stalled rental growth globally. In Australia, Sydney's industrial vacancy rate has increased to 3.75%, up from a global low of 0.2% in late 2022. Melbourne and Brisbane have also seen vacancy rates rise to 3.1% and 3.4%, respectively.

Effective rents, which account for rent-free periods and incentives, have been under pressure, with some submarkets seeing incentives double over the past year.

Despite these challenges, industrial property remains an attractive investment. The demand surge for industrial assets has been evident for years, with notable moments such as Goodman Group surpassing Scentre Group’s market value in 2019. Investment volumes in the sector continue to rise, reaching $8.8 billion year-to-date—a 36% increase from last year.

As vacancy rates climb and rental growth slows, understanding these shifts will be crucial for making informed decisions in the industrial property market.

Distressed Sales on the Rise: Shifting Property Market Creates Opportunities and Challenges

The property market continues to evolve, with distressed sales emerging as a notable trend. In NSW, distressed listings rose to 1,236 in October, while Victoria saw a 5.6% increase, pushing the total to 1,104—exceeding pre-pandemic levels for the first time. Tasmania is experiencing similar patterns as financial pressures mount.

Many of these distressed properties aren’t new to the market; they started as regular listings that failed to sell, prompting owners to re-list with an urgent need to offload. This trend reflects the challenges homeowners face amid high-interest rates and cautious buyer sentiment.

For buyers, distressed properties offer unique opportunities but require careful evaluation to ensure value. Sellers, on the other hand, should consider strategic pricing and marketing from the outset. With auction clearance rates in Melbourne and Sydney slipping, it’s clear the market dynamics are cooling, but these shifts also present opportunities for informed buyers and sellers.

Housing Affordability Crisis: High Prices and Interest Rates Create Unprecedented Challenges

The housing market has reached new levels of difficulty, making it harder than ever for aspiring buyers to enter. A combination of high interest rates and rising property prices—an unusual pairing—has pushed housing affordability to historic lows.

Currently, the average household needs 10.6 years to save for a 20% deposit. Even after overcoming that hurdle, mortgage repayments on a median-priced home now consume over half of the median household income. For renters, the situation is similarly grim, with rents taking up 33% of median incomes—well above the 20-year average.

Despite higher interest rates and reduced borrowing power, house prices continue to rise, largely driven by wealthier buyers and first-home buyers supported by intergenerational wealth, or the “bank of mum and dad.” This dynamic has kept demand high, elevating prices and making the market even more challenging for those without financial support.

The affordability crisis is impacting Australians across the board and shows no signs of easing.

If you're interested in securing your first home, expanding your investment portfolio, or exploring property investment through your Self-Managed Super Fund, please don't hesitate to contact Steven at 0414 759 733.