Price surge on the cards as investors still missing in action

Perth’s real estate boom has failed to fix the city’s feared rental drought, with newly released figures showing property investors have largely shied away from adding to the dwindling vacancy cache.

Following the end of the COVID-19-inspired ban on rent rises and evictions on March 28, experts expect prices to surge due to lack of competition.

According to the latest Australian Bureau of Statistics’ lending indicators data, mortgages for investor housing nationwide skipped ahead 9.4 per cent, the biggest jump since September 2016, leaving them on the hook for $6.6 billion in loans.

Though there was a 62.4 per cent rebound in investor lending with $336.6 million borrowed in January 2021, Nu Wealth Managing Director Daniel McQuillan said that still represented a $100,000 plunge from borrowing figures clocked last decade.

“And virtually all of the current investment by investors is going into buying established homes and not purchasing or building new homes,” he said.

“Nearly 80 per cent of all lending to property investors in Western Australia went to purchasing established housing, meaning only a trickle of brand new rental properties is coming into the rental market.

“This is why Perth is experiencing a rental famine and why weekly rents will rise by over 20 per cent in the coming months.”

Mr McQuillan said investors were not being tempted by rising values or rental returns, topping five per cent in many suburbs, nor the state recording the highest population growth rate in the country.

He said the market was being crippled by buyer’s fright and a herd mentality that convinced investors to buy at the top of the market, rather than taking a chance before a boom.

“I have one client who has already lost $100,000 because they backed off buying a 400sqm lot in a Perth riverside suburb one year ago,” Mr McQuillan said.

“They could have bought this lot for around $400,000 in March 2020, and now you can’t find a similar lot in the same suburb for under $500,000.

“Based on current trends, the same investor will be lucky to buy a similar lot in the same suburb for under $600,000 by the end of this year.”

Mr McQuillan said property investment lending never fully recovered from the 2014 housing boom, which had logged mammoth mortgage commitments of more than $1 billion a month during the peak.

Executive Properties Owner and Licensee Tim Whall agreed that investors were still nursing wounds from equity loss and would likely need more time to dip their toes in the water again.

“In the last three to four weeks, we have noticed an increase in investor interest,” he said.

“Values of apartments have stabilised and have been steady the past six months.

“These properties are not increasing at rates seen in blue chip housing markets.

“Properties priced and offering a favourable yield are gaining the most traction and interest.

“To further speed things along, I think we would benefit from some targeted stimulus or concessions to give investors confidence to enter back into the market in significant volume, and sooner rather than later, to avoid a crisis due to lack of supply in rental properties.”

Mr Whall said values stabilisation, affordable CBD apartments and a few months monitoring the impact of the rent moratorium lifting should see people meet with their accountants come June 30 and start contemplating properties as a good investment again.

Weighing into the conversation, Spraggon George Real Estate Principal James Cornell said there wasn’t necessarily a timeline to follow, but owner-occupiers would eventually be met with some solid competition.

“I believe we will see investors begin to compete with owner-occupiers,” he said.

“There is likely to be more stock available as some off-the-plan projects get triggered and the new buildings reach their completions later this year, potentially sparking the interest of investors.

“Perth prices are comparatively low to the eastern states, and we are in a better interest rate environment.”