Edition #13 - Latest On Property Investors, Unit Prices Rising, VIC's Rental Market Faces Challenges & Big 4 Bank Makes New Rate Prediction
Sam Giardina
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Property Investors Recalibrate Amid Market Shifts
Investor activity in 2024 tells a mixed story. On one hand, new investor loans grew 18.8% nationally over the past year, with high-growth states like SA, QLD, and WA leading the charge. On the other hand, investor listings rose in slower-growth areas such as Victoria, Tasmania, and NSW, driven by soft property values and increased holding costs, including Victoria’s reduced land tax threshold.
The profile of investors is also changing. Less-leveraged buyers and first-time investors are entering the market, viewing property investment as a more affordable way to step onto the property ladder. Despite strong demand, the number of new loan commitments has softened since April, likely due to fewer affordable opportunities and expectations of stable but high interest rates.
This dynamic highlight’s a resilient yet evolving property investment landscape, as buyers adapt to market conditions.
Unit Prices Gain Momentum Amid Affordability Challenges
While houses have historically outpaced units in price growth, affordability pressures are driving more homebuyers toward units, leading to significant shifts in demand. According to PropTrack's latest Home Price Index, national home prices reached a record peak in October, now 45% above March 2020 levels. During this time, house prices have surged by 48%, whereas unit prices have risen by 23%.
However, the gap is narrowing. Over the past two years, house and unit price growth has been nearly identical—9.8% for houses and 9.1% for units. Searches for units on realestate.com.au have also increased, now accounting for almost 40% of buy searches.
In some suburbs, units have far outpaced houses in value growth. In NSW, areas like Engadine and Wagga Wagga saw unit values grow by up to 6.8 percentage points more than houses. Similarly, suburbs in Victoria such as Safety Beach and Templestowe Lower showed stronger unit growth, while Queensland’s Waterford and Waterford West saw unit prices rise at more than double the rate of houses.
This shift signals a growing preference for units as affordability challenges push buyers toward this more accessible housing option.
Victoria’s Rental Market Faces Investor Exodus and Supply Challenges
Victoria’s active rental bonds dropped by 21,712 in the 12 months to June 2024, the first decline since records began in 1999. This shift reflects the challenges investors face, including Australia’s highest property taxes, stricter rental standards, and higher interest rates. Up to 70,000 investment properties were sold in the past year, double the usual turnover, with metro Melbourne seeing the sharpest decline (-3.7%), except for growth in Melton, a rapidly developing suburb.
Rents have surged, with some areas experiencing nearly 20% annual growth, although demand has eased due to affordability pressures. Many renters are turning to homeownership, with Victoria leading in first-home buyer loans, accounting for 32% nationally. While this trend offsets some rental losses, it reduces rental stock further, exacerbating supply issues.
Rising construction costs and fewer new homes add to the strain. If investor withdrawal continues, it could limit new developments, particularly multi-density housing, pushing costs higher for renters and buyers. With Victoria’s population set to grow significantly, the state faces mounting pressure on its housing market.
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NAB Adjusts Rate Cut Forecast and Competes with Variable Rate Cuts
National Australia Bank (NAB) has revised its interest rate forecast, now predicting the first cut will occur in May 2025 rather than February. This adjustment follows stronger-than-expected labour market resilience and limited data expected before the Reserve Bank of Australia’s (RBA) February 2025 meeting. With only two employment reports and one quarterly CPI release before then, NAB anticipates the RBA will avoid premature policy changes.
NAB now expects the cash rate to gradually reduce to 3.10% by mid-2026, with one cut per quarter following the May 2025 adjustment. This stance diverges from other major banks like ANZ, which still forecasts a February rate cut, contingent on inflation and labour market developments. Similarly, Westpac and Commonwealth Bank remain cautious, emphasizing the importance of labour market trends and unemployment rates.
In a strategic move, NAB recently cut its base variable home loan rate by 40 basis points to 6.4%, targeting borrowers with loan-to-value ratios (LVRs) of up to 95%. This is NAB’s first base variable rate reduction this year, likely aimed at countering competition from low-rate digital loan offerings from CommBank and ANZ Plus. This adjustment positions NAB competitively while retaining in-person service options for borrowers.
Sam Giardina - Finance Broker - Clio Financial
PH: 0422 269 868
W: www.cliofinancial.com.au
DISCLAIMER: This article is intended for informational purposes only and does not constitute financial advice. The content is based on current market data and research but may not be applicable to your personal circumstances. Before making any financial decisions or taking action, you should consult with a qualified financial advisor.