Investor Loan Surge and What FHBs Need to Know
The Australian property market has seen a significant uptick in investor activity, with new investor home loans surging by 30.2% in June compared to last year. This sharp increase in investor loans is outpacing the loan growth for owner-occupiers, making it increasingly challenging for first-time buyers to break into the market.
Impact on First-Home Buyers
The value of new loans for people buying homes to live in rose slightly by 0.5% to $18.2 billion in June. In contrast, investor loans jumped by 2.7% to $11 billion. Over the past year, loans for first-time buyers grew by 13.2%, significantly lagging behind the 30.2% increase in investor loans. This widening gap has contributed to the difficulties first-home buyers face, with their loan values increasing by 0.7% in June and 3.4% over the year.
Despite the significant rise in the cash rate since early 2022, investor interest remains robust. However, experts caution that house prices might stabilize as the Australian economy slows and higher interest rates take their toll.
Investor Loan Growth Across Australia
Investor loan growth varies across states:
New South Wales has the highest average loan sizes, with owner-occupier loans averaging $780,000 and investor loans averaging $818,000, well above the national average of $636,600.
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Should Property Investors Diversify?
Australians have a strong affinity for property. Their household net wealth hit a record $16.2 trillion in early 2024, with $11.0 trillion tied to property. Residential property accounts for 67.9% of household wealth, up from 61.7% in December 2020. Given this concentration, experts suggest diversifying investments.
Exploring Private Credit
Private credit investments are gaining traction as a diversification strategy. With residential property yielding less than 5%, private credit offers potential annual returns of around 10%, outperforming traditional bank deposits and Australian investment-grade bonds, which returned 6.8% for the year ending July 31, 2024. Private credit, especially direct lending, has provided higher returns with less risk than other investment types since the Global Financial Crisis, according to the IMF’s 2024 Global Financial Stability Report.
Conclusion
In a market heavily focused on property, investors may want to consider diversifying into private credit to balance their portfolios and potentially enhance returns. As always, thorough research and choosing a skilled investment manager are crucial for navigating private credit investments effectively.
Exploring diversification strategies could offer a pathway to greater returns and stability for those invested heavily in property, shares, and cash. For more detailed information, read our related Articles or CONTACT US. You can also book a consultation call with us at 1300 GET LOAN or 0456456267