Housing Market Severly Distorted

Loans to investors are growing twice as fast as owner occupied loans according to an article I read today in AFR.....


Also, Here is a link that may interest some

Housing market "severely distorted" by portfolio investors - MacroBusiness


Extract - Macrobusiness 5 February

The investment property sector is hot at the moment, with around 1.5 million households now holding investment property and the number of investment loans is the rise. In December, according to the RBA, investment loans grew at 0.8%, twice as fast as owner occupied loans, and around 36% of all loans are for investment purposes.

But not all property investors are created equal. Using data from our large scale household surveys, we have looked in detail at those who hold multiple investment properties.

These Portfolio Investors have become a significant force in the market. For example, in November about twenty per cent of transactions were from portfolio investors – or about six thousand transactions. Whilst overall investment loans grew at 0.8%, there was an estimated 4% increase in transactions from Portfolio Investors.

If we plot the overall loan growth trends against the proportion who are Portfolio Investors, we see a that since late 2015, it is these Portfolio Investors who have been driving the market. In addition, more than half of these transactions are in New South Wales, which is the property investor honeypot.

Many Portfolio Investors will have three or four properties, though some have more than twenty and the average is about eight. Some of these households have taken to property investment as a full-time occupation, others see it as their main wealth building strategy.

So, in summary, our analysis shows the market is being severely distorted, making homes less affordable, and shutting out many owner occupied purchasers who cannot compete. Risks are building, but meantime Property Portfolio Investors are having a field day!

 

Are they though? Personally, I have not found macrobusiness articles to be particularly reliable. I have found them quite politically motivated and agenda driven.

 

First world issue, isn't it? Just read similar on BP.

 

Well no. Because now it seems CBA has to pull back on Investor loans (there's another thread) as I suspect our loan growth to investors maybe close to the 10% mark. So to stay on the good side of APRA we, (pretend that i'm CBA), have to slow lending to investors down, starve it of a little oxygen. I read in that other thread other loans maybe assessed at 8.75% rates... that will kill investor borrowing. Good for OO's looking to buy, but not good for house price appreciation. Also not good for all the investors looking to buy that "just one more property".

Perhaps for me, if I am to continue, what it means is that I need to:
1. Do an equity pull sooner rather than later
2. Assuming borrowings may be assessed at 8.75% in the near future, seek out and lock in a loan preapproval ASAP
3. Or look for commercial as it can be assessed on its own merits (i.e. on the income it provides) rather than on my borrowing capacity.

 

If this becomes more widespread my preferred approach is now:

• Continue deploying excess cash into share investments to build a passive income stream that enhances serviceability
• Continue feasibility for townhouses or units on one of my IPs for potential of selling with a DA ( or development myself, but that will be difficult if serviceability changes become more widespread )
• Land bank 2nd IP

 

I was saying that there is also general concern about the level of investor borrowing in other countries such as us and uk and govt moves to limit this (in uk at least).

 

Ahhh. "First world issue" vs. "#FirstWorldProblem"

 

I think there's no denying that homes have become less affordable for the average factory guy or pizza guy. Question should be, is that worth caring about, and is that our problem?

Would you rather have less cap growth and more affordability, or screw affordability and make buckets of money?

 

You're missing the bigger picture....cities still need pizza guys/cleaners/childcare workers/receptionists/waiters/labourers...if they're not around then yes, you do have a problem.

 

Yes this matches my anecdotal opinion from the ground. Australian property is definitely a Ponzi scheme. So much of our 'wealth' is based on it.
Is our 'Plan B' if it all looks unsustainable from a local economic point of view just to open the doors in a more unrestrained fashion to foreign money/migration? We still have a relatively nice country, quite a bit of space, stability, security there will always be quite a bit of foreign demand.
We have already seen this recently with the apartment booms in Sydney/Melb using forcing otp purchases to stimulate the economy. Is plan B to let foreigners buy anything and Plan C to let them come here on very favourable/minimal visa conditions?
Because mining is about all else we have to prop up the crazy prices. And mining money comes in cycles that are mostly outside of Australia's control.

 

The data may be correct but to conclude that the market is "distorted" in subjective. Who is to say what the appropriate mix of investors vs end owners should be?

 

Values are, in the long term, determined by rental yields. So the question to ask is, are current prices justified in light of current rentals. That will give you your answer ...

 

I have also, at times, found water to be relatively wet.

 

Good point.
Justified? I don't know. What is your analysis?

 

Pretty much my thoughts @wombat777. Except I still wanted to land bank next Bri IP with dev potential once my current house construction in Sydney is complete.

 

Sydney and Melbourne overvalued in general.

Other markets such as Gold Coast Brisbane and Perth may be at fair or below value, especially houses.

 

As for what the optimum of investor vs owner ratio a market should have, I have no view.

 

Haha I'm a communist when it comes to houses and broadly agree with you.

I bet most people here disagree

 

Sydney is in the same league as New York, London and Tokyo.

It's an international city.

If you're a pizza guy you shouldn't be able to afford to buy in any of those markets. Rent an apartment, sure, but buy? No chance.

 

Exactly. Owning is by no means any basic right. If you can't afford to buy then rent.