Investors Returning to Market - Key drivers of market strength and the path ahead

The Australian real estate market has demonstrated remarkable resilience in growth prospects, even in the face of consistent quantitative tightening measures implemented by the Reserve Bank of Australia (RBA). One significant contributing factor to this resilience is the savings buffer built by Australian households during the pandemic.

Consistently Promising Capital Gains:

To understand this growth pattern, let’s delve into relevant statistics:

Source: ABS, Australian System of National Accounts

According to the Australian Bureau of Statistics (ABS), the household saving ratio increased from 5.9% in FY 18-19 to 12.5% in FY 19-20.

Simultaneously, the rate of net worth growth remained sluggish, indicating that most Australian households prioritized building their savings buffer.

Over subsequent years, the household savings ratio moderated, while national net worth saw significant growth. This suggests that while savings remained a priority, households also focused on accumulating wealth through fixed assets.

The household savings ratio followed a bell curve, eventually decreasing to 4.3%. Meanwhile, national net worth continued to rise, reflecting an aggressive outlook among households. Their priorities shifted from short-term savings to long-term wealth accumulation through property investment. Consequently, property rates have consistently increased, even after the RBA’s interest rate hike in November.

This trend indicates that Aussie households actively directed funds toward the property market, diverting resources from traditional savings accounts. Despite this erosion of the household saving ratio, the surge in national net worth and residential property prices persisted.

Steady Increase in Rental Yields:

Rental yields have steadily climbed to a four-year high, with advertised rents following a hockey stick curve post-May 2020.

This surge is driven by a shortage of new units in the property market and a continuous demand for rental properties. Investors are keen to expand their portfolios, seeking properties that offer both long-term capital gains and attractive rental yields.

Growth in the value of New Lending

New lending, excluding refinancing, has also witnessed growth over time. This positive trend reflects investor sentiments. The market outlook remains growth-oriented for both buyers and sellers.

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Key Takeaways:

• Healthy Capital Gains: The property market’s robust capital gains have positively influenced both sellers and buyers.
• Aggressive Property Positioning: Aussie households are actively prioritizing property purchases over traditional savings, positioning themselves aggressively in the market.
• Lucrative Rental Yields: Rental yields have been at a four-year high since May 2020, making it an opportune time for investors to enter the market.
• Long-Term Capital Gains: The increase in new lending continues to drive housing market rates, signaling potential long-term capital gains.